How are withdrawals for non-qualified expenses taxed?
If funds are withdrawn for a purpose other than to pay for qualified higher education expenses (except in the event of a beneficiary’s death, disability, scholarship or attendance at a military academy), or they are treated as withdrawn (for example, if an ineligible beneficiary is named), there will be a 10% additional federal tax on the earnings portion of the distribution.
If funds are withdrawn for a purpose other than to pay for qualified higher education expenses for an eligible beneficiary (except if due to the beneficiary’s death, disability or scholarship), there will be federal income tax on the earnings at the account owner’s tax rate, as well as a 10% additional federal tax on the earnings portion of the distribution. For Georgia state tax purposes, a non-qualified withdrawal will result in income taxation on the earnings portion of the distribution and, to the extent that the account owner has previously taken a state income tax deduction for contributions to the account, the contributions portion of the distribution (“recapture”). However, if an account owner has also made contributions to the account that were not deducted, the contributions portion of a non-qualified withdrawal does not have to be included in taxable income until the account owner has withdrawn all of the contributions that were not deducted. Use the Withdrawal Request form
