This is getting me closer - but not all the way there.
As I understand it, only the portion of the $4k that was gains should be included in income (since money going into 529 plans is post-tax). Let's say the fraction of gains associated with the $4k is $200. I can cover that with your approach (mark it as income on a separate line item), but I also need to cover the 10% penalty (e.g. a $20 penalty). I'm not sure how to add $20 straight to the taxes due...
