Withdrawing money from a Fidelty 529 plan

I just got off the phone with a Fidelity rep, and I am not too happy with them. Here's the deal.

Suppose you put $2900 (e.g.) into a 529 account with Fidelity in 2004. Over time it grows to $3500, and in 2007 you pull out $3500, emptying the account.

Early in 2008, you get a 1099Q form with this exciting information:

• Box#1 says you took out $3500.
• Box#2 (earnings) says you earned $3500.
• Box#3 (basis) says $0.00

In other words, the 1099-Q says that $3500 came out of thin air. It might be S/T capital gain, L/T capital gain, dividend payout, or gambling winnings -- the 1099Q doesn't say.

Well, fortunately it was only back in 2004 so I still have records showing how much I put into the account, so the cost basis is actually knowable. Especially since this account only had one deposit (the opening one).

Now if these had been mutual funds in a non-529 account, they would have (at least I assume they would have) tracked the cost basis, but for 529s they don't do it.

Bottom line: If you use Fidelity for your 529 accounts, and if you spend anything at all on non-qualified expenses (living expenses, for example), wherein you will want to know the cost basis for your account (so you can calculate earnings), then you are SOL (simply out of luck). So keep track of those contributions yourself!