I came here to work http://keandra.in.net/ keandra.com  With 529 plans, the account owner, normally the parent, is only taxed – and penalized – on what the 529 plan has earned. If the money is withdrawn because it was no longer needed – in the case of a scholarship award, for example – the 10 percent tax penalty is waived. But income tax is still charged on the earnings, just like it is for investments outside of 529s.