Student #2 has sufficient expenses that none of the distribution is taxable. Just don't enter the 1099-Q*.
Student #1 has $451 of non-qualified distribution. $451/ 17,144 = 2.63% of the distribution is non qualified. 0.0263 x $1976 earnings = $52 taxable income (and subject to the 10% penalty). It won't get taxed since he has so little other income, but you have to do the paper work to pay the $5 penalty. If you bought a computer, during the term, and it was used for school, it is a qualified expense, even if there was other personal use. If you're going to enter it, be advised it easy to make mistakes. The alternate "someone else not listed here" method describe above is advised.
*You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records.
References:
- On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
- IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
