No, you are not required to report this on your tax return. This will not be a red flag to the IRS. As long as the funds were used for qualified education expenses, the distribution is not taxable.
On form 1099-Q, instructions to the recipient read: "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.
You can just not report the 1099-Q, at all, if your student beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double-dip! When the box 1 amount on form 1099-Q is fully covered by expenses, there will not be a taxable distribution.
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