What is a taxable withdrawal?

There are certain circumstances, such as if your beneficiary receives a full ride scholarship, when you can make a taxable withdrawal. A taxable withdrawal is a withdrawal made due to either the permanent disability or death of a beneficiary, the beneficiary’s receipt of a scholarship, or the beneficiary’s attendance at a military academy. Taxable withdrawals are subject to applicable federal income tax on earnings, if any, but are not subject to the 10% additional federal penalty tax on earnings.