How are withdrawals taxed?
Your child can receive tax-free withdrawals in any year, including years after 2010, to the extent that he or she incurs qualified higher education expenses (QHEE). If your child withdraws more than the amount of QHEE, then the earnings portion of that excess is subject to income tax and an additional 10% penalty tax. If you also take withdrawals from a 529 plan in the same year for the same student, you will need to allocate the available QHEE between the accounts. Through 2010, tax-free withdrawals can also be taken from an ESA to pay for certain elementary and secondary school expenses. This includes tuition, fees, tutoring, books, supplies, and equipment incurred in connection with school (grades K through 12). It also includes any room and board, uniforms, transportation and supplementary items which are required or provided by the school. Finally, it includes expenses for the purchase of computer technology or equipment, or Internet access, used by the beneficiary and family duri
