I truly appreciate your help. Im sure Im confusing everyone, as I am really confused myself (and usually have a pretty good handle on this stuff).
Let me see if I can clarify in hopes that you can help me understand.
Both girls school expenses (tuition, etc) are paid for by a grandparent. Therefore we do not write a check, have loans or anything from our end to the schools, so technically not our money/expenses. We are trying to recoup the 529 money (I know can be saved for next generation, etc, but we had set it aside not knowing we would receive this "gift" so would like to be able to use towards other things.) Thus, we learned that we could take a non-qualified distribution in the exact amount of the scholarship and we would be taxed on the earnings but not have the 10% penalty (when we take the distribution from the 529 program, it specifically asks if its qualified expense or non-qualified and we said non-qualified) in the amount of the scholarship.
I understand that daughter #1 seems to be covered and not have to pay the taxes, and that if I list room & board for #2, it may be her case as well, but Im trying to be on the up and up here and not test the system especially since the 529 program has it as a "non-qualified" distribution. Happy to be able to make it work and not pay the taxes, but also dont want trouble down the road.
