Question

funds in a 529 plan are not needed because the child has received a full scholarship to college. the funds in the account can: a only be used to make donations to the college attended by the child in lieu of paying tuition, room and board b only be withdrawn to pay for other parental obligations to the child c be withdrawn from the account by the parent and used for any purpose and will be subject to ordinary income tax only d be withdrawn from the account by the parent and used for any purpose and will be subject to the 10% penalty tax only

Answer 1

The correct answer is d) funds in the 529 plan can be withdrawn by the parent for any purpose and will be subject to ordinary income tax and a 10% penalty tax only on the earnings portion of the withdrawal. However, if the child receives a scholarship, the penalty tax will be waived on the amount of the scholarship.