Terry53029
Level 14
Level 14

Did the beneficiary have a scholarship, if so there is an exception to the 10% penalty

Exception #2 – The beneficiary receives a scholarship(s)

If the beneficiary receives a tax-free scholarship or grant the account owner can withdraw up to the amount of the award without paying the additional 10% penalty. What this does is changes the 529 account from a tax-free investment, to a tax-deferred investment