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Need 528 Plan Distribution Citation

Posed this a few months ago, but did not ask for a specific book, chapter, verse citation.

Put in $10,000 into a 529 plan for granddaughter several years ago, plan now worth $20,000. If I take out $10,000 for non-qualified purposes (my own bank account), can I consider the entire withdrawn amount a return on investment with no capital gains? The reply here was no, you must take a pro-rata view, ie, $5000 is a return on the capital investment with a $5000 long-term capital gain.

Can someone give me a citation where that viewpoint is given? I have no problem understanding the approach, but would like an actual citation if possible.

Reply to
hrhofmann
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IRC Section 529(c)(3) that points to Sec. 72. Here is the explanation from the proposed regulations:

Income Tax Treatment of Distributees In accordance with section 529(c)(3), the proposed regulations provide that distributions made by a QSTP, including any benefit furnished in-kind, must be included in the gross income of the distributee to the extent that the distribution consists of earnings. The proposed regulations clarify that term "distributee" refers to the designated beneficiary or the account owner who receives or is treated as receiving a distribution from21 a QSTP. As required by section 529(c)(3)(A), distributions under a QSTP must be included in income in the manner as provided under section 72. Therefore, deposits or contributions made into an account under a QSTP are recovered ratably over the period of time distributions are made. The amount of taxable earnings shall be determined by applying an earnings ratio, generally the earnings allocable to the account as of the close of the calendar year divided by the total account balance as of the close of the calendar year, to the distribution.

Reply to
Alan

IRC Section 529(c)(3) that points to Sec. 72. Here is the explanation from the proposed regulations:

Income Tax Treatment of Distributees In accordance with section 529(c)(3), the proposed regulations provide that distributions made by a QSTP, including any benefit furnished in-kind, must be included in the gross income of the distributee to the extent that the distribution consists of earnings. The proposed regulations clarify that term "distributee" refers to the designated beneficiary or the account owner who receives or is treated as receiving a distribution from a QSTP. As required by section 529(c)(3)(A), distributions under a QSTP must be included in income in the manner as provided under section 72. Therefore, deposits or contributions made into an account under a QSTP are recovered ratably over the period of time distributions are made. The amount of taxable earnings shall be determined by applying an earnings ratio, generally the earnings allocable to the account as of the close of the calendar year divided by the total account balance as of the close of the calendar year, to the distribution.

I have looked in Section 72, but did not see what you quoted. Can you give me a more specific reference by paragraph in section 72?

Reply to
hrhofmann

72(e)(9) makes 72(e)(2)(B) applicable to QTPs and CESAs.
Reply to
Alan

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