<p>^^^
Right publication, but wrong section. Need-based financial aid grants that are given for qualified education expenses can offset 529 withdrawals made for noneducational purposes. The 10% additional tax penalty will be waived, but normal federal income tax will apply to the earnings portion of the withdrawal.</p>
<p>Here’s the pdf version of the complete IRS publication 970:
<a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>See page 55 under Additional Tax on Taxable Distributions.</p>