529 plan account owners can withdraw any amount from their 529 plan, but only qualified distributions will be tax-free. The earnings portion of any non-qualified distributions must be reported on the account owner’s or the beneficiary’s federal income tax return and is subject to income tax and a 10% penalty.

What happens if you don’t use money in a 529 plan?

If you don’t use the 529 funds for eligible expenses, you usually have to pay taxes and a 10% penalty on the earnings portion of the withdrawals. For more information about the rules, see the “qualified tuition program” section of IRS Publication 970, “Tax Benefits for Education.”

How to make withdrawals from your 529 plan?

How To Make Withdrawals From Your 529 Plan 1 Withdraw the right amount. – If the account owner is the parent or student, it is best to take the maximum of qualified withdrawals as early as possible. 2 Time disbursements carefully. – Withdrawals should be taken in the year in which the expense is incurred. 3 Disburse to the right entity. …

Can a 529 account be used for nonqualified expenses?

Another withdrawal option: You could have the money distributed from the 529 account to your child. If some of the money is used for nonqualified expenses, such as buying a car, there may be reportable earnings—which will go on your child’s tax return.

What happens when you take money out of a fidelity 529 account?

There may also be state or local income tax, as well as interest or dividends tax. You can transfer money between Fidelity accounts or to your bank account. You can withdraw any amount up to the full value of the account. After taking a withdrawal from your 529, you will be sent IRS form 1099-Q. Opens in a new window.

What do you call a 529 savings plan?

A 529 savings plan, or qualified tuition program (QTP), as it is officially known, provides tax advantages if you want to save for your child’s college education (and, since the 2017 tax bill, K-12 private education as well).