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Karen established a 529 for her son Matt that was being used exclusively for Matt's college payments. While Matt was attending college, he asked Karen

Karen established a 529 for her son Matt that was being used exclusively for Matt's college payments. While Matt was attending college, he asked Karen for money to buy a watch. Karen agreed and withdrew an additional $4,000 from the 529, and purchased the watch for Matt in Matt's name.
 
What is the tax treatment of this withdrawal?

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