Can you withdraw principal from 529 without penalty?

A 2017 law allows parents to withdraw up to $10,000 per year tax-free from a 529 plan for primary and secondary education tuition at private schools without incurring the typical penalty. This rule may vary from state to state. You’re dealing with after-tax dollars, so they can use that for anything.”

If you withdraw the money for anything other than eligible education expenses, you’ll have to pay income taxes and a 10% penalty on the earnings portion of the withdrawal. The principal isn’t subject to taxes or penalties, but keep in mind that 529 account owners can’t withdraw only principal, says Boswell.

Who gets taxed on non-qualified 529 distributions?

The recipient of the non-qualified distribution pays the taxes on the distribution. For example, if a parent takes a non-qualified distribution from the 529 plan to pay for travel costs, the parent will pay the taxes if the check from the 529 plan is in the parent’s name.

What is the penalty for withdrawal from a 529 plan?

529 plan withdrawal penalty Only the earnings portion of a non-qualified 529 plan distribution is subject to a 10% withdrawal penalty. California imposes an additional 2.5% state income tax penalty on the earnings portion of non-qualified 529 plan distributions.

Do you pay taxes on a non qualified 529 plan?

Non-qualified 529 plan distributions are taxable. The earnings portion of non-qualified distributions is subject to federal, and sometimes state income tax. Non-qualified distributions payable to the beneficiary are taxed at the beneficiary’s tax rate. Non-qualified distributions payable to the parent may result in a higher tax liability.

Is the basis portion of a 529 plan taxed?

Each 529 plan distribution is made up of an earnings portion and a basis portion. The basis portion, or principal, consists of the contributions made to the account. Since 529 plan contributions are made with after-tax dollars, the basis portion of a 529 plan distribution will never be taxed or subject to penalty.

When do you get tax refund from 529 plan?

In 2020, since so many owners received refunds due to campus coronavirus closings, the IRS extended the window to the specific date of July 15, 2020. Distributions from a 529 plan will trigger a 1099-Q tax form.