David, Thank you for the quick reply and the link. It's comforting to know that room and board are qualifying expenses when paid with VA529 funds. Unfortunately, if Turbo Tax takes 1098-T form literally then taxes are indeed applied. In this case (and many cases from what I read), the college's 1098-T form lists only the Tuition component as payments received and does not include the room & board component that we paid the college. The 1099-Q shows the total withdraw we took to cover both. So as a close example, if the 1099-T shows $6,000 for qualified Tuition expenses paid (for semester in this case) and the 1099-Q shows $12,000 gross distribution then Turbo tax concludes $6,000 of "non-qualified" expenses and advises that we must pay tax on the earnings portion ($4,200) of that distribution. Again, in this example, Tuition was $6,000 for the semester and Room & Board was $6,000 for the semester.
