Q. I have no ability to enter in the other $5500 of qualified expenses (room and board)?
A. To get the screen to enter Room & Board, answer yes when asked if you have book expenses (after entering the 1098-T)
Since your son is not a dependent, and you never claimed the AOTC, he can claim it for 2024. It's worth up to $2500. You should pay a little tax on the 529 distribution so he can do that. He can already use $1500 of expenses for the credit (12,500 -11,000 = 1500). The AOTC is 100% of the first $2000 and 25% of the next $2000. So, depending on your tax bracket, you should give him another $500 or $2500.
Putting the 1099-Q on his return is not an option, since you are the recipient.
The interview is complicated and it's easy to make mistakes. If the above suggestion doesn't solve the problem, Here's an easier workaround in TurboTax:
Enter the 1099-Q. When asked who the student is answer: someone else not listed here (lying to TurboTax to get it to do what you want does not constitute lying to the IRS). Enter the student's name when asked. A few screens later, you'll get one simple screen to enter expenses. Press Done at the 1099-Q summary screen, to get there. . You do not have to deal with the complicated “Educational expenses and Scholarships” (1098-T) section later (delete the 1098-T, if you previously entered it).
If you are going to allocate more expenses, to him, for the AOTC, at that expenses screen, enter either $500 or $2500 in the box "Tax-free assistance". This reports some of the earnings as taxable but claims the tuition credit exception to the penalty. TT will prepare form 5329 to claim the penalty exception.
