You won't pull money out of a 529 plan to pay for education because your contributions grow federally tax-free over time. Consider starting your account with a $10,000 contribution and an annual return of 5%. Accordingly, your account will have a total earning of $500, or 5% * 10,000. The precise amount your account will generate without any deductions is ($500), as the returns are not tax deductible. However, you are only allowed to spend this income for expenses that are specifically allowed to be relevant to your education. If you choose to utilize the funds for other costs, you will be penalized and the amount you withdrew will be taxed as income.