Is there a penalty for using 529 funds for unqualified expenses?

by Christopher C. Humes, CPA | Jun 24, 2016

Is there a penalty for using 529 funds for unqualified expenses, like travel?

If the 529 plan funds are used for unqualified expenses, there is a 10 percent federal penalty tax as well as regular federal income tax on the earnings. For Pennsylvania, the total amount of the distribution that was claimed as a deduction in a previous year is taxable.

Answered by: Christopher C. Humes, CPA, is with Baker Tilly Virchow Krause LLP in Wormleysburg, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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