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As a grandparent, I had a 529 for my grandchild. He received…

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As a grandparent, I...

As a grandparent, I had a 529 for my grandchild. He received a full scholarship. I closed the account. Am I subject to the 10% penalty ?

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I know I have to pay tax on the earnings, But 10% penalty also ?????

Submitted: 2 months ago.Category: Tax
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3/26/2018
Tax Professional: Tax.appeal.168, Tax Accountant replied 2 months ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
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Tax Professional: Tax.appeal.168, Tax Accountant replied 2 months ago

SEE BELOW:

You can withdraw money from a 529 up to the amount of a tax-free scholarship without paying the 10% penalty. You still have to pay income taxes on earnings, but contributions can always be withdrawn tax- and penalty-fee.

REFERENCE SOURCE:

https://www.kiplinger.com/article/college/T002-C001-S001-the-529-plan-scholarship-exception.html

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Tax Professional: Tax.appeal.168, Tax Accountant replied 2 months ago

Penalty Exceptions

In certain circumstances, you can take a non-qualified distribution without owing the 10 percent additional tax penalty, though you will still owe income taxes on the earnings. For example, if you inherit the 529 plan and receive the distributions as the beneficiary, you don't owe the 10 percent penalty. You also don't owe the penalty if you are permanently disabled or if the distributions were taxable because you received a tax-free scholarship or attended a U.S. military academy.

REFERENCE SOURCE:

https://finance.zacks.com/penalty-withdrawing-529-plan-1789.html

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