Q. What remains a mystery is why this happened in the first place, using TT?
A. I don't have MI software, to give you a specific answer. But, based on similar situations, it's a case of TT needing to handle every situation and the interview for a rare situation (a 529 distribution being taxed on the federal but not state) confuses the regular user. It's usually covered in the "fine print", but easily missed.
