|Question: What happens if I need to use the funds in a 529 plan before my child goes to college?|
The good news is that you can withdraw money from your 529 account at any time and use it for any purpose. But unfortunately, if you're not using the money for qualified education expenses, you may have to pay a 10 percent federal penalty tax on the earnings portion of the funds you've withdrawn (a state penalty may also apply). And as the account owner, you may owe federal (and in some cases state) income taxes on the earnings portion as well. So, make sure you fully understand the financial consequences before tapping 529 funds for a reason other than to pay education expenses.
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.