Furthermore, 529 plans provide several avenues to divert/divest excess or unused plan balances.
I put a large chunk of what I received into a 529 plan and an education savings account for my son.
A 529 plan is the frequently used name for a qualified tuition plan, a tax-advantaged plan designed to help save money for college expenses.
Because 529 plans were created specifically for college costs, the tax code that governs the plans includes penalties for withdrawing earnings for reasons other than qualified higher educational expenses.
529 college savings plans are widely touted as the most effective way to save for college education expenses.
Here’s what the sitehas to say about the penalty associated with withdrawing funds from your son’s 529 plan: “Federal law imposes a 10% penalty on earnings for nonqualified distributions beginning in 2002. An exception to the penalty can be claimed if you terminate the account because the beneficiary has died or is disabled, or if you withdraw funds not needed for college because the beneficiary has received a scholarship.His articles have appeared in "The Washington Post," "Virginia Magazine," "Vermont Magazine," "Adirondack Life" and the "Southern Arts Journal," among other publications. You might think that when using 529 plans to save for higher education expenses, the hard part is opening and funding the account, and then deciding how to invest the money while it’s there.The tax penalty does not apply for early withdrawals made if the designated beneficiary dies or becomes severely disabled.
Tom Gresham is a freelance writer and public relations specialist who has been writing professionally since 1999.The tax regulations for 529 plans ensure that the person who benefits from an early withdrawal of account funds will be the person responsible for paying the tax bills that accompany the distribution.