Tax-free earnings are a real advantage of saving in a 529 program. Your NC 529 Account earnings
are free from federal and North Carolina income taxes when your Withdrawal is used to pay for Qualified
Higher Education Expenses, such as tuition, fees, room and board, books, and the cost of a computer and associated equipment.
If a Withdrawal is made for reasons other than for Qualified Higher Education Expenses, the
earnings portion of your Withdrawal may be subject to federal income tax
and a 10% federal penalty tax, as well as state and local income
If your Beneficiary receives a scholarship or appointment to a U.S.
military academy, and you withdraw no more than the amount of
the scholarship or cost of the academy education from your NC 529
Account, there's no 10% federal penalty tax; however,
the earnings portion of this type of Withdrawal will still be subject to
federal, and possibly state, income taxes.
The features of a qualified tuition program are complex and involve
significant tax issues. The availability of tax benefits may depend on
meeting other requirements. You should consult your own financial, tax or other
advisor if you have questions about how these tax issues may fit your
More information on tax implications, including gift tax and estate tax, is available in the