529 account distributions for grandchildren
I withdrew $6400 from my 529 account for my grandson, the beneficiary of the account, and used the money (and a bit extra) to pay his tuition and fees for the Fall 2018 semester. The amount I paid was $6450. I was the recipient of the distribution, not my grandson, and I made the $6450 payment directly to his college.
I received Form 1099-Q from the 529 account manager, showing I received a $6400 distribution. My grandson received Form 1098-T from the college, showing he paid $6450 in tuition and fees, and received $10,000 in scholarships. This $6450 was the amount I actually paid, after the $10,000 scholarship was deducted from the total tuition and fees of $16,450.
There were other qualified education expenses, some of which (like room and board) can be used to offset 529 distributions, but those were paid by my son, who is claiming my grandson as a dependent on his return.
1. I assume I will show the $6450 distribution as miscellaneous income on my return, and will somehow have to show the IRS that the money was use for QAEs. How do I do that?
2. My grandson had no income in 2018. Does he need to file a return because of the 1098-T, which shows a $10,000 scholarship?
3. Or does my son, because he claims my grandson as a dependent and pays the rest of his expenses, include the 1098-T on his return? If so, do he and I divide up the QEAs, showing $6450 as my expenses and the rest as his?
4. The IRS instructions for Form 1098-T say the amount shown in Box 1 should not be reduced by any scholarship money shown in Box 5. Did the college erroneously report only $6450 in Box 1, because they reduced the total tuition and fees by the amount of the scholarship money in Box 5? Or am I misreading the instruction?
