Who pays the penalty on FBO excess distributions?

[mariaku]

So if there are two children in college.

Daughter's education expenses are $40k & paid by distribution of $50k from the 529 owned by Grandma, so the 1099-Q is issued to Grandma FBO Daughter.

Son's education expenses are $30k & paid by distribution of $35k from Coverdell owned by Father, so the 1099-Q is issued to Father FBO Son.

When school is not in session, Daughter & Son live with Father.

Who pays tax & penalty on excess distributions? I would think it's whom 1099-Q is issued to (Grandma & Father), or is it the beneficiary?

Thank you for your advice,

M

[dcandmc]

The 1099-Q will name the recipient of the distribution(s) for the tax year and show the recipient's TIN (in the case of a person, this will be the recipient's SSN, or at least the last four digits of the SSN). The recipient named on the 1099-Q and identified by TIN/SSN is the person responsible for reporting on their tax return any possible income/penalty because of a non-qualified distribution.

If a distribution is made to the account owner, the account owner will be the recipient identified on the 1099-Q. If a distribution is made to the beneficiary or a school, the beneficiary will be the recipient identified on the 1099-Q.

[martha_sfc]

Here's an article you may find helpful: https://www.savingforcollege.com/article/whose-tax-rate-applies-to-a-non-qualified-529-plan-distribution