Instructions for 706 Form

Instructions for 706 Form: What You Should Know

Don't confuse an IRS Form 1099-Q sent to a Cover dell ESA recipient with a Form 1099-MISC sent to the same recipient, as these two tax forms are distinct tax forms. What is IRS Form 1099-Q? Generally, any person or business that receives money or property through a 529 plan for educational purposes must prepare and file either a Form 1099-R or a Form 1099-MISC, depending on whether the money or property came from a qualified education expense (HE) or a qualified retirement plan. Qualified ESI and qualified retirement plan If a Qualified Education Savings Act (RESP) qualified recipient's HE is a QSE or a RESP account that is held for the sole purpose of investing for retirement, then the person investing the money or property must include: Amounts received or used to invest the contributions as HE Amounts paid to the beneficiary by the qualified school (see below for exceptions) However, if the beneficiary is an individual under a qualified retirement plan, the person investing the money or property must include: Amounts received or used to invest the contributions as HE Amounts paid to the beneficiary by the qualified plan (see below for exceptions) Example: Mary receives and holds a college savings plan (ESP) that is financed by a qualified school. She is also the beneficiary of an RESP. Mary invests 100 of her RESP money as HE and earns interest from the funds. Her beneficiary receives 60 of net income. Mary does not need to include the QSE payment; the beneficiary has received compensation at the fair market value for the QSE contribution. Thus, her 60 interest payment is properly reported on her Form 1040, as a dividend, as described under Dividends under Qualified Plans (see Pub. 529 for more detail). The 60 amount is not subject to the 10 percent additional Medicare tax on early distributions from an RESP for certain participants enrolled in their traditional Medicare (TMP) plan.

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