"I used the remaining money for their qualified college expenses". You can't do that. You have to name a new beneficiary first, or roll the money over to the other child's account.
"My oldest child now has a job and files a tax return this year, but is still a dependent on my taxes for 2022 (supported by me for most of the year)." Support, alone is unlikely to qualify her as your dependent, if she was not a full time student for parts of 5 months in 2022.
Fidelity is right, the distribution from the first child's account is technically a non qualified distribution, subject to tax and penalty (on her return, because she is the recipient)
