My paperwork states that, if not rolled over into another 529 plan, the money may be subject to a federal income tax & a 10% IRS penalty. I'm wondering how I find out the percentage of the income tax and penalties from the IRS?
If you take out a $10k non-qualified distribution, $8k is contributions, which are tax-free, and $2k is earnings, which becomes taxable and subject to the 10 percent additional tax. So you pay penalty of $200; if your tax bracket is 15% then you need to pay tax of $300.
As long as you make withdrawals only to pay for qualified higher education expenses, books, tuition, mandatory fees, room and board and any necessary equipment, you will never pay income tax when you put the money to use. you'll pay income tax and a 10% penalty on the earnings on withdrawals not used to pay for education expenses.
If you use the funds for other purposes, then only the earnings portion of the distribution is taxable. That amount is listed in box 2 of the 1099-Q and should be reported by you as "other income" on line 21 of the 1040 form you file for the year of the distribution. The taxable portion also is subject to a 10 percent penalty tax that is calculated on Form 5329.
Contributions may be state-tax deductible.you need to contact your hom estate for more info