My son is a freshman and has received approx $4000 in tax-free scholarships, already credited to his college account this fall. I'd like to withdraw some money for him out of his 529 (he's the beneficiary) via the scholarship exemption. Currently, the earnings portion in his 529 is about 30%. He is not working and has no taxable income other than slight bank interest.
(1) If I withdrew, say, $3000 from the 529 paid directly to him this fall, am I correct in assuming that only the 30% gains portion would be taxable for him ($900), and the other 70% ($2100) would be NONTAXABLE gift income (aka family support money)?
(2) If the answer to the above question is "yes", then am I correct in assuming that he would NOT have to file any 1040 as long as he has no other taxable income? (Because the minimum non-earned income for filing 1040 is $1100 and his only taxable income for the year would be less than that: just $900 of the 529 withdrawal).
If (2) is also yes, then it seems there would be no taxes on his $3000 529 scholarship exemption withdrawal. Am I misunderstanding anything?
Thanks for any perspective on this.