Whats an “eligible educational institution?
An eligible educational institution is defined by federal law, but generally includes college or graduate schools and post-secondary vocational or trade schools. The institution must be eligible for withdrawals to be considered qualified. 1The earnings portion of any non-qualified withdrawals (i.e., generally those not used for qualified higher education expenses) is subject to a federal tax and possibly state tax. In addition, the earnings portion of a non-qualified withdrawal is subject to an additional federal penalty in the form of an additional 10 percent tax on the earnings portion of the withdrawal. The 10 percent penalty does not generally apply to certain distributions made after the death or disability of the beneficiary or after the receipt of certain scholarships. 2There may be federal gift or generation skipping transfer tax consequences if the new beneficiary is a member of a lower generation than the prior beneficiary. 3Although the U.S. Department of Education has advis
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