Form 1099-Q for 2026: K-12 Cap Doubles, 529-to-ABLE Permanent

Every January a stack of small forms lands in the mailboxes of families with 529 plans, and Form 1099-Q is an easy one to misread. It shows a dollar figure, it names the Internal Revenue Service, and nothing on it tells you whether you owe anything. The honest answer is usually no, provided the money was spent on the right things. What changed under the 2025 tax law, Public Law 119-21 (signed July 4, 2025), is what counts as the right things, and that matters for the 1099-Q you will receive in early 2027 for 2026 withdrawals.

What each box on Form 1099-Q reports

The current form is the April 2025 revision. Its instructions say to use them “for tax year 2025 and subsequent years until a superseding revision is issued,” and when I checked the IRS draft list on November 11, 2026, no newer revision of Form 1099-Q had been posted. The boxes work like this.

Box 1, gross distribution. Everything paid out in the year, including in-kind distributions. The instructions say it is “the total of the amounts shown in boxes 2 and 3.” It also includes refunds to the account owner.

Box 2, earnings. The investment growth portion of box 1. The payer figures it with an earnings ratio, so a withdrawal from an account that has grown shows both earnings and basis.

Box 3, basis. Your contributions, the part already taxed. By the payer’s instructions it “must equal box 1 minus box 2.”

Boxes 4a and 4b, type of transfer. Box 4a means a direct trustee-to-trustee transfer. The recipient instructions printed on the form say that covers “one QTP to another QTP, one CESA to another CESA, a CESA to a QTP, or a QTP to an ABLE account.” Box 4b was new with the April 2025 revision and marks a direct transfer from a QTP (the formal name for a 529 plan) to a Roth IRA.

Boxes 5 and 6. Box 5 says whether the money came from a private plan, a state plan or a Coverdell account. Box 6 is checked if you are not the designated beneficiary. In that case, the recipient instructions send you to Publication 970 and the Form 1040 instructions.

Box 7. A distribution code, which the payer may enter but is not required to (1 for distributions, including transfers; 4 for disability; 5 for death), or, for some Coverdell accounts, the year-end fair market value.

The part the form leaves out

Nowhere on the form is there a box labeled taxable amount. The recipient instructions are blunt: “Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution.” The plan cannot know whether you paid a tuition bill, bought a laptop, or let the money sit in a checking account.

Publication 970 (2025), chapter 7, sets out the method. First compute your adjusted qualified education expenses, or AQEE: total qualified expenses minus tax-free educational help such as scholarships, and minus any expenses you used to claim an education credit. Then:

1. Multiply the box 2 earnings by a fraction. The numerator is the AQEE paid during the year; the denominator is the total amount distributed.
2. Subtract that result from the box 2 earnings. What is left is income, reported on Schedule 1 (Form 1040), line 8z. The 2026 draft of Schedule 1 keeps line 8z for other income.

If AQEE is at least the total distribution, none of the earnings is taxable and you report nothing. If the distribution exceeds AQEE, a proportional slice of the earnings becomes income. A 10 percent additional tax, figured on Form 5329, Part II, also applies unless an exception covers it. The publication lists these exceptions: death, disability, tax-free scholarships or other tax-free educational assistance (up to that amount), attendance at a U.S. military academy, and amounts taxed only because the same expenses were used for an education credit.

A worked K-12 example, my own numbers run through the Pub. 970 steps. A parent withdraws $6,000 from a 529 in 2026. Box 1 shows $6,000, box 2 shows $1,500 and box 3 shows $4,500. The family paid $4,800 for tuition and curriculum materials at a private school, with no scholarship.

• Tax-free earnings: $1,500 x ($4,800 / $6,000) = $1,200.
• Taxable earnings: $1,500 - $1,200 = $300, reported on Schedule 1, line 8z.
• Additional tax: 10 percent of $300 = $30 on Form 5329.

The $1,200 that was not spent on qualified expenses added $300 to taxable income and a $30 additional tax. In the 22 percent bracket, for instance, that is $66 of income tax plus the $30, or $96 in all. It is a useful reminder to withdraw what you need rather than a round number.

If you are working through a tuition statement at the same time, our guide to 1098-T box 5 exceeding box 1 covers the scholarship side of that same AQEE subtraction, and the Form 8863 changes for 2026 explain the education credits you must not double-count with 529 money. The same no-double-counting rule reaches savings bond interest: the instructions for Form 8815 tell you to leave out expenses “used to figure the nontaxable amount of a distribution from a Coverdell ESA or QTP.”

The K-12 cap doubles, and it covers more than tuition

Before the 2025 law, the only K-12 expense a 529 plan could cover was tuition, and only up to $10,000 per beneficiary per year. Public Law 119-21 changed both limits.

Section 70413(a) rewrote section 529(c)(7) so that qualified expenses at “an elementary or secondary public, private, or religious school” now include eight categories:

• (A) Tuition.
• (B) Curriculum and curricular materials.
• (C) Books or other instructional materials.
• (D) Online educational materials.
• (E) Tuition for tutoring or educational classes outside of the home, “but only if the tutor or instructor is not related to the student” and is licensed as a teacher in any State, has taught at an eligible educational institution, or is a subject matter expert in the relevant subject.
• (F) Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission.
• (G) Fees for dual enrollment in an institution of higher education.
• (H) Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies.

That expansion applies to distributions made after July 4, 2025. Section 70413(b) then raises the ceiling, effective for taxable years beginning after December 31, 2025. The sentence at the end of section 529(e)(3)(A) now reads that cash distributions from these plans “shall, in the aggregate, include not more than $20,000 in expenses described in subsection (c)(7) incurred during the taxable year.”

Two practical points. The word “aggregate” matters: the limit looks at all of the beneficiary’s plans together, not each account separately. And the cap limits how much K-12 expense the year’s distributions can count, so a parent who pays $26,000 of private school costs and takes $26,000 out of a 529 should expect the part above $20,000 to be treated as an ordinary nonqualified distribution. That reading of the statute is mine; Publication 970 (2025) has no worked example of a withdrawal above the K-12 cap.

I did not check which states treat these K-12 expenses as qualified for state income tax purposes. State rules can differ from the federal definition, so ask your plan before relying on a deduction at home.

The Pub. 970 “$10,000 of tuition” wording

If you read Publication 970 (2025) on the way to your return, you will find two statements that do not match. Chapter 7’s list of qualified elementary and secondary expenses includes all eight categories above, yet right after the list it says: “These are expenses for no more than $10,000 of tuition, incurred by a designated beneficiary, in connection with enrollment or attendance at or for students enrolled at or attending an eligible elementary or secondary school.”

That sentence reads like a leftover from the tuition-only rule. The $10,000 figure was right for 2025 returns, but the statute’s cap counts “expenses described in subsection (c)(7),” not tuition alone, and for 2026 the figure is $20,000. When I checked the IRS list of draft forms and publications on November 11, 2026, the only Publication 970 entry was the 2025 edition, so there is no 2026 text to compare against yet. When the 2026 edition appears, check whether this passage was updated. In the meantime, the code controls over the publication.

Credential programs: four routes in section 529(f)(2)

Section 70414 added “qualified postsecondary credentialing expenses” to the definition of qualified higher education expenses, for distributions made after July 4, 2025. They include tuition, fees, books, supplies and equipment required for enrollment or attendance in a recognized postsecondary credential program, fees for testing required to obtain or maintain a credential, and fees for continuing education required to maintain one.

The program itself has to clear one of four tests in new section 529(f)(2):

1. It is on a State list prepared under section 122(d) of the Workforce Innovation and Opportunity Act.
2. It is listed in the public directory of the VA’s Web Enabled Approval Management System (WEAMS).
3. An exam developed or administered by an organization widely recognized as providing reputable credentials in the occupation is required to obtain or maintain the credential, and that organization recognizes the program as preparing people for the exam.
4. The Treasury Secretary, after consulting the Secretary of Labor, identifies it as a reputable program.

The credential has its own definition in section 529(f)(3). It covers industry-recognized employment credentials that are issued by a program accredited by the Institute for Credentialing Excellence, the National Commission on Certifying Agencies or the American National Standards Institute, listed in the Defense Department’s Credentialing Opportunities On-Line (COOL) directory, or identified by the Treasury Secretary. It also covers certificates of completion of registered apprenticeships, occupational or professional licenses issued or recognized by a State or the federal government (and certifications required to obtain such a license), and credentials defined in section 3(52) of the Workforce Innovation and Opportunity Act when provided through a program on a State list.

The permanent rollover to an ABLE account

A 529 balance that is no longer needed for school can move into an ABLE account for the same beneficiary or a family member, and the move is not taxed. Section 529(c)(3)(C)(i)(III) used to carry an expiration date, allowing the rollover only for transfers made “before January 1, 2026.” Section 70117 of Public Law 119-21 struck those words, effective for taxable years beginning after December 31, 2025, so the option no longer expires.

Limits still apply. The statute says the rollover is excluded only to the extent that, “when added to all other contributions made to the ABLE account for the taxable year,” it does not exceed the annual ABLE limit in section 529A(b)(2)(B)(i), which our ABLE contribution limit guide covers. Publication 970 adds that an amount counts as rolled over if it is paid to the ABLE account within 60 days after the distribution, and that you should contact the ABLE program before contributing so the limit is not exceeded. The Form 1099-Q instructions tell plans to report a 529-to-ABLE rollover by checking box 4a and using distribution code 1 in box 7. Publication 970 says not to report qualifying rollovers anywhere on Form 1040.

The Roth IRA rollover and box 4b

The other exit is section 529(c)(3)(E), enacted in 2022. A direct trustee-to-trustee transfer to a Roth IRA for the beneficiary escapes tax if the 529 account has been maintained for 15 years, the amount does not exceed contributions (and their earnings) made more than five years earlier, the year’s total fits within the Roth contribution limit after other IRA contributions, and the lifetime total across all such transfers stays at or below $35,000. It is reported in box 4b.

Sources

• Public Law 119-21 (approved July 4, 2025), sections 70117, 70413 and 70414 — https://www.govinfo.gov/content/pkg/PLAW-119publ21/html/PLAW-119publ21.htm
• 26 U.S.C. 529, Legal Information Institute (subsections (c)(3), (c)(7), (e)(3), (f)) — https://www.law.cornell.edu/uscode/text/26/529
• IRS, Form 1099-Q (Rev. April 2025) — https://www.irs.gov/pub/irs-pdf/f1099q.pdf
• IRS, Instructions for Form 1099-Q (Rev. April 2025) — https://www.irs.gov/pub/irs-pdf/i1099q.pdf
• IRS, Publication 970, Tax Benefits for Education (2025), chapter 7 — https://www.irs.gov/pub/irs-pdf/p970.pdf
• IRS, Schedule 1 (Form 1040) 2026, draft (created 4/24/26), line 8z — https://www.irs.gov/pub/irs-dft/f1040s1—dft.pdf
• IRS, Instructions for Form 8815 (2026), draft, line 2 — https://www.irs.gov/pub/irs-dft/i8815—dft.pdf
• IRS, Draft Tax Forms list (checked November 11, 2026) — https://www.irs.gov/draft-tax-forms