How is the money taxed when it is withdrawn?
A. Earnings on withdrawals are exempt from federal and Vermont income tax when used to pay for qualified higher education expenses. Please see the Plan Disclosure Booklets for further details. If you make a withdrawal for any reason other than for qualified higher education expenses the earnings portion of the withdrawal is subject to both Vermont and federal income taxes. In addition, there is an “additional tax” (paid by Account owners through their federal income tax returns) of 10 percent on the earnings portion of withdrawals not used for qualified higher education expenses.
