.....10% federal penalty tax on the earnings portion of the non-qualified distribution. The principal portion of your 529 withdrawal is not subject to tax or penalty.
Since you can withdraw your contributions tax and penalty free, it seems fairly straight forward to max out a plan for 3-5 years while accumulating and then withdraw the money when you quit working and have low income.
At least in Illinois, you can knock 20K per year off your taxable income, which is huge for people in this state. We don't have many tax breaks.
I thought 529 plans only offered state tax benefits on contribution? In other words, they are funded with after-(federal) tax dollars, so of course you can withdraw those contributions (federal) tax free. Am I wrong or missing the point of the question?
Yes, as far as I know it's only state. Further research also found that the withdrawals are on a pro-rata basis so if your account has grown by 10%, they tax 10% of your withdrawal even if you take out exactly what you put in. It's not like withdrawing a Roth contribution, where you can take out exactly what you put in.