Q. Should he still answer Yes to 'Can someone claim you as a dependent?' even if he provided clearly over half his support. I think not.
A. No. But, from the info you provided that's not clear. In particular, the support from the 529 distribution is considered as coming form you, not him.* Even if he can't be a dependent, he needs to meet the separate earned income rule for the refundable portion of the AOTC.
Q. Additional wrinkle - he had leftovers in 529, so we paid Spring 2025 grad tuition of 5k from 529 in December 2024, even though he has enough in his own savings and it showed up in his 1099-Q for 2024. Was this a big mistake?
A. Not a big mistake but hurts your desired outcome, of him providing more than half his support.
Q. Are there penalties?
A. No, since there were plenty of expenses to cover the distribution, even if he claims the AOTC
*The treatment of expenses paid with distributions from Sec. 529 plans and Coverdell ESAs in the support test is uncertain because of the dual nature of these college savings vehicles and a lack of IRS guidance. The consensus among tax experts is that it is parental support, because the parent is the owner of the plan. It would be helpful (but not a guarantee), to your case, to make distributions to the the beneficiary, not the owner . References:
https://ttlc.intuit.com/questions/3402602-can-i-claim-money-from-a-529-fund-as-my-supporting-my-22-y...
https://ttlc.intuit.com/community/college-education/discussion/re-does-529-distribution-count-as-par...
