Q. Then entered the 1098T. When navigating to the "Amount Used to Calculate Education Credit", It does in fact have $9173 already plugged in. I do have the opportunity to change it. Am I supposed to change it or leave it?
A. Leave it.
Q. This increased her refund from $513 to $1901 (a increase of $1388) This seems too good to be true which is why I am here?
A. It's true. That's about the amount I expected.
Q. Rather than use the tax benefit of using 529 money to pay the tuition, we are using the Lifetime Learning Credit. And the IRS will penalize us since we did not claim to use the 529 money for tuition. but the benefit of using the LLC is greater than the benefit plus any penalties for not using the 529 account for tuition. Is my understanding correct?
A. Yes. In this case the numbers worked out perfectly. One reason was because your plan earnings were so low. But, in general it's a 20% credit vs a12% tax rate. For undergrads (or usually their parents) it's a 100% credit (on the first $2000 of tuition).
