Q. Why is TT put the kid’s higher 529 WD as other income instead of apply the extra to the other kid?
A. Because that's not allowed.
The part you want to apply to the other kid, is an excess (non qualified) distribution. The earnings portion of the excess is technically taxable.
In the future, to do what you want to do, you must first transfer (rollover) money from one kid's account to the other. You are limited to one rollover per year (within a 12 month window).
