My son received scholarship of 4k in spring and 4k in fall for 2023 and free tuition. He paid 5k towards tuition fees in summer. I withdrew the 5k from 529 plan for which I received 1099-Q. I wish I had paid from 529 plan directly to university so that 1099-Q would be in his name. Last 2 years my son has been filing his own taxes with 1098-T so that standard deduction completely covers his scholarship receipts of 8k and he pays no taxes. The 1099-Q is in my name, I am being taxed on Earnings and being assessed 10% penalty. From what I have read about 529 plan, the penalty may be waived if there are extenuating circumstances, such as if the beneficiary receives a scholarship. How do I handle situation so that my son can continue filing taxes and not have to pay taxes on his 8k scholarship, while I avoid the 10% penalty for withdrawal from 529 plan.
