@dmertz Your reply made me re-think my math. I was *not* including income tax on the excess 529 earnings in my calculation (only the penalty). Once I include the excess 529 earnings as income and pay the income tax + 10% penalty, I would owe more tax than by applying all the expenses to the IRA distribution.
Everyone's situation will vary, but in my case the break even point on the principal\earnings is ~74%. Since mine is less than that, I'll pay less overall tax by using the *entire* 529 distribution against the actual expenses and the *remainder* of the expenses against the IRA withdrawal.
