I have a client, grandparent that put money in a 529 plan for a grandchild. The grandparent received a 1099-q for the distribution. Even though the grandparent does not claim the grandchild as a dependent, can they use qualified expenses paid by the grandchild to calculate the tax exempt distribution. The entire distribution went to the grandchild for the purpose of education.? I believe that as long as the expenses were not used twice and coordinated with the parents of the child as far as what was claimed for the tax credit and scholarships received.
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The grandchild is considered a family member and thus is a designated beneficiary. The grandparent enters the 1099-Q and uses the qualified expenses of the grandchild - As long as those expenses are not used twice.
See instructions 1099-Q page 1 - http://www.irs.gov/pub/irs-pdf/i1099q.pdf
Mike
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