Restating the facts, for clarification.:
He got $25K scholarship
He took a $25K distribution from his 529 plan (he was the recipient)
He had $10K room & board (R&B)
He had $ 15K tuition, fees and other qualified expenses (books & course materials including a computer)
He had $2500 earned income
Is that correct?
Q. The $15K distribution used to pay for qualified expenses, should be tax-free and penalty-free. Am I correct?
A. No. It appears it was covered by scholarship.
But you can re-allocate funds and expenses as needed.
Q. Can we only declare earned income on the scholarship amount we did not get 529 distribution?
A. No, you can re-allocate funds and expenses as needed.
Are you eligible for the AOTC (is your income not too high)?
Is any of the scholarship restricted? That is, must it be used for certain expenses (usually tuition)?
Is the student your dependent?
I assume the student is a full time undergrad.
