Q. Am I allowed to still withdraw 529 funds without the 10% penalty?
A. Yes, claim the "scholarship" exception in TurboTax. Technically, it's a "tax free assistance" exception.
After entering the 1098-T, you will be asked if you had any scholarships not reported on the 1098-T. Enter the tuition remission amount.
If you have any problem getting TT to do that, reply back for a short cut. It should generate form 5329 with $0 on lines 7 & 8, to claim the exception (you'll see a worksheet in TT, that is nor sent to the IRS)
