Form 1099-Q — Payments From Qualified Education Programs (529, Coverdell)

This skill processes a Form 1099-Q that the user has received from a 529 plan trustee or Coverdell ESA custodian. It determines whether the distribution is fully tax-free, partially taxable, or fully taxable; computes any earnings portion that flows to Schedule 1; identifies whether the 10% additional tax under IRC §529(c)(6) applies; and produces an audit-grade worksheet the user can attach to their records.

The arithmetic is simple. The judgment is in (1) what counts as a Qualified Higher Education Expense (QHEE), (2) how AOTC / Lifetime Learning Credit coordination forces certain expenses out of the QHEE pool, and (3) when the SECURE 2.0 §126 529-to-Roth rollover qualifies for tax-free treatment. The agent must ASK before guessing on any of these.

When to invoke

Engage this skill when any of these is true:

• The user explicitly mentions Form 1099-Q, "1099-Q", or a 529/Coverdell distribution
• The user describes withdrawing money from a 529 plan or Coverdell ESA — for tuition, room and board, K-12 expenses, apprenticeship, student-loan repayment, or a Roth IRA rollover
• The user asks "is my 529 distribution taxable?" or "do I owe a penalty on my 529 withdrawal?"
• The user got a 1099-Q showing a distribution they didn't ask for (e.g., trustee error, forced rollover) and wants to know the tax consequences

Do not engage this skill when: