My daughter will receive a large tax free tuition scholarship. For the 2021 calendar year, it will be $17,500. We intend to take a non-penalty matching distribution from a 529 plan that is owned by her grandparents. She will have no other income to report. She can be claimed as a dependent on her parents return.
Is it correct that the earnings portion of the 529 plan distribution should be reported as unearned income on my daughter’s tax return? Is it correct that long term capital gains will have a 0% tax liability (because her earned income is less than $39,000), and that short term capital gains will have a 10% tax liability up to the first $12,000 in earnings? Can I expect earnings to be broken down into short- and long-term capital gains and dividends on her 1099Q?
Thank you - this all seems so complicated.
