Yes, the $495 qualifies as a qualified distribution over the $10,000 allowed for high school. This is because the course is post secondary even if the student isn't.
I don't know that TurboTax is able to handle your situation. Try entering the $495 as a separate distribution. Enter one 1099-Q for $10K and a 2nd 1099-Q for the $495. That way you can assign H.S. expenses to one and college expenses to the other.
Better yet, just don't enter the 1099-Q (delete what you have entered).
You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms.
References:
- On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
- IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
