In addition to tuition, room and board, books and computers are qualified expenses for a 529 plan distribution. Bottom line, even if you use $4000 of the tuition to claim the education credit (and you should), there are plenty of expenses available to keep the 529 distribution tax free.
The TurboTax 1099-Q interview is complicated. Since you know it's not taxable, it's best to just not enter it.
On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms.
