1. Taxation on withdrawals - Funds used for college expenses Withdrawals used for qualified higher education expenses are exempt from federal income tax if no other education tax incentives* are used for the same funds.

State of Ohio - Distributions are tax-free for Ohio taxpayers if the funds withdrawn are used for qualified higher education expenses.

*Other education tax incentives - Distributions are not subject to federal income tax if the funds are used to pay qualified higher education expenses and such expenses are not used by the Account Owner, Beneficiary or any other person to claim the American Opportunity Tax Credit (essentially a supercharged Hope Scholarship credit ) or the Lifetime Learning Credit. If these education tax incentives are used for the same funds, the earnings portion of the distribution is subject to federal income tax (but not the additional 10% tax penalty).

2. Taxation on withdrawals - Funds not used for college expenses If any part of a distribution of an account is not used to pay the qualified higher education expenses of the Beneficiary, the earnings portion of the distribution is taxable at the recipient's tax rate, and is also subject to a 10% additional federal tax penalty.  (Applies for any reason other than Beneficiary death or disability, receipt of scholarship, attendance at a U. S. military academy or rollover distribution to another 529 qualified tuition program).

Maintaining records substantiating use of funds for tax purposes – CollegeAdvantage can release funds without receipts or other documentation of use. The distribution recipient is required to maintain records substantiating the use of funds for tax purposes.  

State of Ohio - The distribution recipient is also responsible for paying state income tax on any earnings and recapture of contribution deductions at his or her tax rate.

3. Taxation on withdrawals - Beneficiary death/disability, receipt of scholarship or attendance at a military academy Since distributions on account of the Beneficiary's death or permanent disability, receipt of a scholarship or tuition waiver, or attendance at a U.S. military academy are not considered used for qualified higher education expenses, the earnings portion of the distribution is taxable at the recipient’s tax rate. However, the distribution is not subject to the additional 10% federal tax penalty normally imposed on distributions not used for college expenses.

State of Ohio - The distribution recipient is responsible for paying state income tax on any earnings realized at his or her tax rate. The recapture provision regarding contribution deductions does not apply.

4. Taxation on withdrawals - Rollover distributions
Rollover distributions are not subject to income taxation on earnings (federal or state), or the 10% additional federal tax normally imposed on distributions not used for college expenses, as long as the guidelines regulating rollover distributions are adhered to.