Grandparents and 529 plans

[...]adjusted qualified higher education expenses (AQHEE) are available. Note that QHEE and AQHEE do not include the cost of transportation or personal expenses. 1RS Form 1099-Q Once the state's program manager makes the distribution, he is required to issue a Form 1099-Q to the individual who receives the distribution. * If the distribution is equal to or less than the QHEE/AQHEE, there is no taxable income * If the distribution is more than the QHEE/AQHEE, then the earnings in the portion that exceeds the QHEE/AQHEE are taxable as ordinary income and subject to an additional 10% penalty * If there are no qualified expenses (QHEE/AQHEE), the earnings included in the distribution are taxed as ordinary income and subject to a 10% penalty.