My college student will graduate in May 2020 with a job starting thereafter. Due to scholarships, there is a good bit of money left in his 529. To reward him for his hard work, I'd like to do a non-qualified 529 distribution directly to him so he will have money for an emergency fund, a Roth IRA and some spending money. He should be in the 12% marginal tax bracket this year working about 6+months.
So anything I need to watch out for as far as taxes.
Q: Is the 10% penalty on this non-qualified distributions waived due to scholarships? I would make sure the earnings on the distribution does not exceed his scholarships this semester. I assume no penalty.
Q: Can I still claim him as a dependent since he is a college student for a semester?
