re: "same" 4k being applied to AOTC and being 529 w/d penalty-free: on his return, he is paying the tax and 10% penalty on ALL of his unrelated 529 w/d. (this 4k portion of his 1098-T tuition is only being applied to the AOTC to get the credit but not reducing his unrelated 529 w/d). so it is not reducing any penalty for him. on my return, I am paying tax but not paying any penalty because the 4k is being allocated to him for the AOTC, and the rest of my 529 w/d has QHEE. [I guess in theory if I had known before doing my 529 w/d that he might be eligible for the AOTC, I would have made my 529 w/d smaller to not even be taxed on it.] ...Are you saying I should be hit with a 10% penalty on my return for the 4K going to his AOTC? I think the penalty-free aspect of the 4k is only being applied once, on MY return - he isn't using it on HIS return to offset any 529 w/d.
note re 4 yr eligibility: we have never been eligible for any education tax credit before, so this is not an issue. also, the 4 yr limit says "has completed 4 yrs by Jan 1", which as of 1/1/25 he had not (only 3-1/2), so he is eligible in 2025. As of each Jan 1: in 2021 he was only halfway through freshman year, so 2022 was his first year of eligibility for AOTC (when he'd completed 1-1/2 years).
