government may say you can use 529 money for K-12 expenses, a state may consider such a withdrawal a non-qualified distribution
and could charge you penalties, said Steffen.
Finally, even when a non-qualified distribution
is made, the amount otherwise subject to taxation will not be subject to the 10% penalty tax if the distribution is used for qualified education expense or a first-time home purchase as discussed above.
Once an investor turns 65, however, non-qualified distributions
are taxed penalty-free, just like 401(k) distributions.
Instead of following ordering rules, non-qualified distributions
from designated Roth accounts generally consist of a pro-rata portion of after-tax funds (i.e., DRA salary deferrals and in-plan Roth conversion amounts) and pre-tax funds (earnings).
of any amount attributable to the qualified rollover are considered an investment in the contract, or recovery of basis, and not subject to early withdrawal penalties.
These non-qualified distributions
from Roth IRAs are treated as made first from contributions other than rollover contributions, then from qualified rollover contributions and finally, from any earnings on the contributions.