Penalty on 529 plan withdrawal ?

[Rapid Robert]

They also were made aware of and expected the tax and penalty.

To be clear, in your initial post, you asked whether or not the grandparents were subject to the penalty. Now you say you already knew that. My comment was based on the content of your intial post, not your contradictory follow up.

[RWG1950]

The taxpayers were made fully aware of all their options. They also were made aware of and expected the tax and penalty.
Sometimes we find that people do things that seem to defy common sense.
The purpose of my post was simply to see if anyone knew of a way to mitigate the penalty.

[Rapid Robert]

After they were made aware of their options

It appears they were not, in fact, "made aware" of their options if they didn't know about the penalty.

[Lion]

If they don't use it for education, yes, there's a penalty on the taxable earnings.

[RWG1950]

Grandparent-owners created 529 plans for grandchildren about 25 or so years ago. All have now graduated college & are on their own.
About $10-K total remained in two of the 529's. After they were made aware of their options, the grandparent-owners elected to cash these out.
When the earnings and basis are entered from the 1099-Q on the grandparent's return, in addition to the tax on the gain, the return shows a penalty
of about $500 or so. Are the grandparents subject to the penalty ? If not, how to remove it.
Thanks for comments.