I think it is unclear if the 1099-Q earning are reportable to Colorado. There is no specific adjustment I know of, however it makes sense that since the withdrawal is not used for qualifying expenses, as far as Colorado is concerned, that the income would be reported.
In addition, if a Colorado tax deduction was taken for a contribution to the plan, you would have to claim the withdrawal not spent on a qualified expense, such as K-12 tuition, as income. See Colorado publication FYI 44. Since your taxpayer has not taken a Colorado deduction for contributions, they will not have to report the principal distribution as income.
CPA, Retired