how do 529 plans work?

Can you lose money in a 529 plan?
True or false: I will lose the money if my child doesn't go to college or gets a scholarship and doesn't need all the money. False. You don't lose unused money in a 529 plan. ... You can withdraw the amount of any scholarship awards from your 529 without penalty; federal and state income taxes on the earnings still apply. Feb 9, 2021
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Is a 529 Plan Really Worth It?
529 plans typically offer you unsurpassed tax breaks. Earnings in a 529 plan grow tax-free and are not taxed when they're withdrawn. This means that however much your money grows in a 529, you'll never have to pay taxes on it. However, you do not get to deduct your contributions on your federal income tax return. Oct 19, 2020
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What happens to 529 if child doesn't go to college?
If assets in a 529 are used for something other than qualified education expenses, you'll have to pay both federal income taxes and a 10 percent penalty on the earnings. (An interesting side note is that if the beneficiary gets a full scholarship to college, the penalty for taking the cash is waived.) Sep 1, 2020
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Why a 529 plan is a bad idea?
A 529 plan could mean less financial aid.
The largest drawback to a 529 plan is that colleges consider it when deciding on financial aid. This means your child could receive less financial aid than you might otherwise need.
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