Account Types
If a 529 plan beneficiary receives a full scholarship, what happens to the funds in the account?
Scholarship exception: Withdraw up to scholarship amount, no 10% penalty (but earnings still taxed).
Complete Analysis & Legal Rationale
If the beneficiary receives a scholarship, up to the scholarship amount can be withdrawn without the 10% penalty. However, the earnings portion would still be subject to income tax. This is one of several exceptions to the early withdrawal penalty.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing securities rule described in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Official Standard: Fair dealing obligations in municipal securities activities (verify current text).
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.