Q. Can room and board costs that were not paid by the 529 distribution be counted?
A. Yes.
Q. Or are the only room/board costs allowed to count are ones paid with the 529?
A. No. It does not matter what expenses were paid with what sources of money.* You are free to allocate the expenses wherever it does most good, tax wise.
Q. I'm trying to understand that when offsetting the 529 distribution with expenses, it is not a 1:1?
A. The expenses to distribution is a 1:1 offset. But, once you arrive at the percentage of the distribution that is non-qualified, that same percentage of the earnings is taxable.
*With the exception of restricted scholarships.
