Q. I don't understand why everyone keeps saying to enter room and board?
A. You seem to have a problem accepting that room and board, in this situation, are qualified expenses for reducing the amount of tax on the 529 distribution and/or increasing the amount of LLC the student gets. The fact that "everyone" is telling you that means it is true. It may take a little effort to come up with an amount to use (check the school web site for Allowance for cost of attendance)
Q. Does this mean I put 12k into the 529 and it made 3k interest resulting in 15k?
A. Yes, but not exactly. It means that 12K of you overall contributions and 3K of you overall earnings were allocated to this distribution.
Q. If so am I correct in understanding that if I took the 15K and bought a used car...I'd owe taxes on 3k of that distribution to me?
A. Yes. And you would also owe a 10% ($300) penalty on the unqualified distribution. There is a penalty exception (but not a tax exception) when a distribution is non qualified because the student (or parent) claimed a tuition credit or received a scholarship for the same amount of the distribution.
