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SESK: Stuff Everyone Should Know · sesk.info/dad-529-penalty

If 529 money is withdrawn for non-education spending, what extra federal charge applies to the earnings?

A 10% federal tax penalty, plus regular income tax.

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  1. A 2% federal fee
  2. A 25% federal fee
  3. A 10% federal tax penalty ✔

Why: The earnings part of a non-qualified withdrawal is taxed as income and hit with an extra 10% federal penalty. There are some exceptions, so check the plan rules.

Huh, didn't know that: One exception: leftover 529 money can be rolled into a Roth IRA for the same beneficiary.

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References

Answer: A 10% federal tax penalty. The earnings part of a non-qualified withdrawal is taxed as income and hit with an extra 10% federal penalty. There are some exceptions, so check the plan rules.

  1. Investor.gov: Introduction to 529 Plans www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/introduction-529-plans-investor-bulletin
    subject to state and federal income taxes and an additional 10% federal tax penalty on earnings.
    Checked 2026-10-10.

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