529 Non-qualified withdrawal taxes

[GaryBr2]

My son has graduated college and I'm fortunate enough to have a 529 surplus.  I'm interested in withdrawing the balance of the account but want to make sure I understand the tax implications first.  It's my understanding the earnings portion will count as ordinary income with an additional 10% penalty.  For example, if the earnings portion is $40K then that amount is included with my other income to calculate my tax liability.  Once that number is known, an additional $4K (10% of $40K) is added to determine my total tax liability.  Is my thinking correct?

Thanks

Gary

[Bsch4477]

You are correct. You might consider rolling over the funds into a Roth IRA. 

[GaryBr2]

Thanks, that's just what I wanted to hear

[Hal_Al]

Q. Once that number is known, an additional $4K (10% of $40K) is added to determine my total tax liability.  Is my thinking correct?

A. Yes.  That's how a non qualified distribution is taxed.

There are other options for handling left over 529 money.  Roll over to an IRA is one, but there are restrictions.  You can't roll over the whole amount at once and there's a $35K max, over time. 

https://www.schwab.com/learn/story/529-to-roth-ira-rollovers-what-to-know

Changing the beneficiary to another family member is another frequently used technique. 

https://www.savingforcollege.com/article/how-to-transfer-529-plan-funds-to-a-sibling