I have a new college freshman and am trying to strategize how best to combine scholarships, 529 withdrawals and AOTC. I have always been under the impression that AOTC funds must come out of pocket, and cannot come from a 529 plan (no double dipping).
I was discussing this with a co-worker, and he said that he was using his 529 to pay the entire bill, and still claiming AOTC.
According to his tax advisor, you cannot use tax-free gains from a 529 for AOTC, but you can use 529 contributions for it.
Is this correct? This flies in the face of what I have believed to be true.