SIE practice questionhard529 Plans
If a 529 plan's funds are used for non-qualified expenses, the account owner may be subject to:
- ADouble state taxation
- BNo tax or penalties
- C100% forfeiture of principal
- DOrdinary income tax on gains and a 10% penalty on earnings✓ Correct answer
Explanation
Why D — Ordinary income tax on gains and a 10% penalty on earnings
Non-qualified 529 plan withdrawals generally subject earnings to ordinary income tax and a 10% penalty. Principal is not forfeited, and qualified education withdrawals receive the tax benefit.
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