Submitted by dollydagger2 t3_109h59k in personalfinance
Hi, my college age stepdaughter lives in another state. My husband, her dad, has been contributing to a 529 plan for her since she was a kid. It wasn’t a ton of money but enough to get her started with a 2 year degree. She’d already spent some of it on a year of community college.
This summer, my stepdaughter got upset with my husband and didn’t speak to him for a few months. It was a minor tantrum over her boyfriend and she and my husband recently made up. During this time of no contact, my husband also noticed a $4000 distribution from her 529 plan to a beauty school in her town. Now that my stepdaughter is speaking to her dad again, we found out the story behind the beauty school enrollment - she never intended to go to school there. She signed up for classes and had her 529 funds applied toward the term. Then she went back to the school a few days later and unenrolled so she could get a cash refund.
My husband is the owner/sponsor of the 529 plan, does he owe any penalties for this? He and I file married, joint return. Does my stepdaughter owe penalties? Does this count as income for her?