My last child is a college underclassman and I will claim him as a dependent in 2020 and use the American Opportunity Tax credit in 2020 for $2000 in tuition payments that I've paid directly. His older siblings are out of college and the 529 balance left will more than cover his remaining college expenses. He will have about $20,000 in scholarships for 2020.
I am wondering what would happen if I take a $9000 non-qualified distribution paid out to him. Approximately $5000 would be earnings. I am the 529 owner and he is the beneficiary. He will likely have $2K - $3K in earned income from a summer job.
Q: Would he file taxes separately even though he is a dependent and a college student?
Q: If he does need to file separately does the $12,400 standard single exemption apply?
Q: Will the 10% non-qualified penalty apply since the distribution is less that his scholarships?
Q: Would the 529 distribution count as income for the FAFSA? He does not have any financial need based on our EFC currently so I am not sure that it would hurt any.
Yes
No
