May I make a non-qualified withdrawal from a 529 plan, without paying the 10% penalty, for non-taxable employer tuition reimbursement? What about any taxable bit?

Forum|Forum|1 year ago
June 11, 2025
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This site (https://www.investopedia.com/news/penaltyfree-way-get-529-money-back) suggests I can avoid the 10% penalty for the non-taxable bit, but is silent on any taxable employer tuition reimbursement. But other sites, including some older threads here, suggest otherwise.

Hal_Al

Level 15

Q. May I make a non-qualified withdrawal from a 529 plan, without paying the 10% penalty, for non-taxable employer tuition reimbursement?

A. Yes. Having received employer assistance, in the amount of the distribution, qualifies as a penalty exception. Reference: page 53, IRS Publication 970. https://www.irs.gov/pub/irs-pdf/p970.pdf

Q. What about any taxable bit?

A. The amount would still be taxable. While there are exceptions to the 10% penalty, there are no exceptions to the tax on a non-qualified 529 distribution (rollovers are not taxable). Reference: page 53, IRS Publication 970.