Q. How much can I withdraw my 529 as a qualified withdrawal (no tax, no penalty)?
A. Simple answer: $30,000; the full amount of the qualified expenses paid. The fact that you also borrowed money is not relevant.
Q. Could I even withdraw $40k – $30k in expenses plus $10k to pay off loan principle?
A. Yes. So long as there was no double dipping. To be a qualified loan (for a 529 distribution) you must have paid qualified educational expenses with it (at some time, not necessarily this year). You can't claim the same expenses for both the loan and the $30K 529 distribution. But, room and board are also qualified expenses, even if the student lived off campus or at home (the student must be half time or more).
