I funded a College Savings Iowa 529 account for each of my six grandchildren. Most of them are adults now and it turns out that I have overfunded the accounts. Therefore I plan to start taking nonqualified distributions. I took a token nonqualified distribution in 2016 to see how I need to report the earnings as taxable income. The instructions that came with the 1099Q say to list the earnings on Form 1040, Line 21 (Other Income). No problem there.
My question is this: On which form and line should I enter the 10% penalty that is due on the earnings of the nonqualified distribution. It would make sense to me to just add 10% to the amount on Line 21, but I’m afraid that the IRS’s computer wouldn’t be able to figure out why the amount shown on 1040, Line 21 is different from the amount reported on the 1099Q, Box 2.