Thanks for your responses. Still not tracking with your last comment.
Q. Also, since our kid has tax-free scholarship more than triple the amount of 529 NQEE, I assume there's no 10% tax penalty on 529 NQEE?
A. Yes. But, better yet, just allocate the expenses to the 529 distribution, not the scholarship taxable income.
Please confirm:
So, are you saying taxable scholarship is just income, so we can use it for whatever we want and simply report it and it increases our 529 QEE? (Thus it helps reduce the corresponding total of our non-qualified expenses?)
I'm not sure what you mean by "just allocate the expenses to the 529 distribution," when we have no other expenses that are 529-allowed expenses. In essence, we are using the first $2K scholarship to cover meal plan costs (if allocating it to any one allowed expense matters), but the only other expenses we have are all housing or food costs above the school's COA, etc. So does the second $2K scholarship simply reduce that NQEE total?
And how does this relate to the 10% tax penalty?
So would I assume my 529 QEE total from earlier stays the same, but my NQEE total is reduced to $747 after allocating the 2nd taxable scholarship. Is this right?
