Penalty on Refund of Earnings

Generally, distributions must be used to pay the qualified higher education expenses (defined earlier) of the beneficiary.

Penalty. There is a penalty on any refund of earnings in 2001 that does not meet at least one of the following conditions.

1. The refunded earnings are used to pay qualified higher educational expenses of the beneficiary.
2. The refund of earnings is made because of the death or disability of the beneficiary.
3. The refund of earnings is made because the beneficiary received a scholarship, a veterans educational assistance allowance, or another nontaxable payment (other than a gift, bequest, or inheritance) for educational expenses. This only applies to the part of the refund that is not more than the scholarship, allowance, or other payment.

Previous| First | Next

Publication Index | IRS-Forms Main | Home