Retirement Accounts
A parent withdraws $15,000 from a 529 plan. $10,000 represents contributions and $5,000 represents earnings. The funds are used to buy a car. What is taxable?
For non-qualified withdrawals from 529 plans, only the earnings portion ($5,000) is taxed as ordinary income and subject to the 10% penalty. Contributions ($10,000) are never taxed or penalized since they were made with
Complete Analysis & Legal Rationale
For non-qualified withdrawals from 529 plans, only the earnings portion ($5,000) is taxed as ordinary income and subject to the 10% penalty. Contributions ($10,000) are never taxed or penalized since they were made with after-tax dollars. Penalty = $500; Tax on $5,000 varies by bracket.
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.