Wow, that was a quick answer. I will need more time to fully assess it.
A wrinkle that I had not considered was adding a reasonable amount of R&B as QEE for 529 purposes.
Prior to my post I had made trentative entries in Turbo Tax, treating the $ 2100 as a refund for 529 purposes
I assumed the plan did not by reporting the gross distribution of $5500. (There is an area available in Turbo Tax to adjust the gross distribution for refunds.)
My tentative enties resulted in the $2100 as a taxable income to the student, $4000 available to the parents for AOC purposes and only $1500 available of the net 529 distribution of $3400 ( $5500-$2100) as a qualifying distribution. In other words, $1900 could not be used as both 529 qualified withdrawal and for AOC purposes, resulting in the income portion of the $1900 being included in the account owners taxable income.
It appears taking into account a reasonable R&B as eligible 529 QEE will allow the account owner to have no taxable income regarding the above activity.
