My daughter received a scholarship for all expenses (tuition, room, board, books, transportation etc. We withdrew the same amount from her 529. I understand the 10% penalty is not applicable; however, is it correct that she/we pay taxes on both the room & board portion of the scholarship AND on the 529 distribution amount equal to room & board? I realize we did not specifically pay it from our money rather with the schools funds. The school did refund any excess balance of her scholarship to be used however she liked. I guess it is not making sense to me to pay taxes on both room & board funding methods (scholarship & 529 distribution) if the 529 allows tax free distribution for Room & Board. Is it correct that we have to report the 529 earnings as income too? Again, I am only speaking of the room & board portion. We fully understand the scholarship portion is taxable.
