Q. What would be the tax implications if we decided to use 10K to pay for tuition? Would that result in a 10% penalty on the 10K plus we'd have to pay taxes on any gains?
A. Yes, you would be subject to the 10% penalty (on the earnings portion only) and income tax on the earrings ("gains") only. As you surmised pre K is not qualified.
If the employer contribution was "after tax" (the contributions were included on your W-2, as income), the taxable portion (earnings) may not be very much. This information should be readily available at the plan site.
