FAQs

Yes. The earnings portion of funds withdrawn for non-qualified purposes are typically subject to federal income tax, as well as an additional 10% federal penalty tax. Taxable withdrawals, on the other hand, are subject to applicable federal income tax on earnings, if any, but are not subject to the 10% additional federal penalty tax on earnings.

A non-qualified withdrawal is any withdrawal that is not considered a qualified expense, a taxable withdrawal, or a rollover. Save for these exceptions, the earnings portion (not the amount you contributed) of a non-qualified withdrawal typically is subject to federal income tax and an additional 10% federal penalty tax.

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.

You can make contributions at any time while your account is active, but, in order to reap any tax benefits on certain contributions, they should be made by the time you file your taxes or Tax Day (whichever comes first).

There isn’t a maximum above and beyond the account maximum of $550,000. Once the account reaches its $550,000 maximum, it can continue to earn money, but no additional money can be contributed to the account until the balance dips below $550,000 again.