Thanks so much.
Just to make sure I was clear, it IS ONLY the earnings that are taxed and penalized.
In the interest of clarity, I found this excellent description:
If you use the money for any other purpose, the earnings portion of the distribution will be taxable on your federal (and possibly state) income tax
return in the year of the distribution. Also, you generally must pay a 10 percent federal penalty on the earnings portion of your distribution. (There are a couple of exceptions. The penalty is usually not charged if you terminate the account because your beneficiary has died or become disabled, or if you withdraw funds not needed for college because your beneficiary has received a scholarship.)
Bear in mind that the "distributee" is the one subject to tax. (The distributee is the person who actually receives the money from the 529 plan.) In most situations, this will be the account owner. So, if you fund a college savings plan for your son, for example, and withdraw the money three years later (before he reaches college age), you will probably be the one taxed and penalized. However, some plans specify who the distributee is, while others allow the account owner to determine the recipient of a nonqualified withdrawal.
Here's an other excellent site with common Q&A on 529 plans:http://www.axa-equitable.com/plan/education/529-plans/non-education-expenses.html