If that entire amount is withdrawn for non-college purposes, you’d have to pay income tax and a 10 percent penalty on the $5,000 gain.
With prices rising everywhere from the gas pump to the checkout line, many parents are wrestling with whether or not they can tap their kids’ college accounts to help make ends meet.At any time, someone who has contributed to a Section 529 account can choose to access their money for any reason.They do not have to worry about explaining it to anyone, and it does not have to be for the benefit of the child.Some or all of this might be included on the parent’s tax return, at the parent’s tax rate, depending on how the family files their tax returns.There are no IRS penalties on taking money out of a UGMA or UTMA account.For example, the plan administrator will not permit changes in the beneficiary designation prior to the current beneficiary's 18th or 21st birthday (depending on the state).
And when the current beneficiary reaches the age of legal ownership, he or she will have the right to contact the 529 plan administrator and take direct ownership and control of the 529 account.
They are considered a gift to that child but can be rolled over to another child if the first doesn’t have qualifying education expenses by age 30.
Better yet, you don’t have to use this account only for college costs.
UGMA and UTMA accounts are often used to pay for college, but can also be used for any expense the minor incurs.
This can include anything from basics costs of living to leisure activities like teams sports.
Because minors generally cannot directly own an investment or bank account, an adult custodian must manage and use the funds for the benefit of the minor child as prescribed under the state's Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).