Had a 529 plan that I contributed $25k of cash in 2006 and grew tired of it losing money and took the cash out 12/30/10. Value is only $20k at thtat date. So I received two 1099 Q's; the first one the gross distribution has $20k (box 1) and box 3, basis has, $20k. Rest are all zero's.

The second 1099Q has negative $5k on line 2, earnings and $5k on the basis, line 3.

How do I report this? I have taxcut but it is trying to jam me with penalties and pick up the income. I can't believe I have to pay tax on the $5k loss/$20k distribution when I originally chipped in $25k of after tax dollars. Thanks for any free advice!

I have the same problem, looks like we may have to report this as a misc expense subject to the 2% floor of the agi.

I really do not like the tax system...