You can only take money out of a College Savings Plan account without a penalty if the money is to be used to pay for what’s called qualified withdrawals. Qualified withdrawals are withdrawals that are to be used to pay for: tuition, fees, textbooks, supplies, equipment and other expenses in an eligible educational institution.

Eligible educational institutions are as follows: colleges, universities, vocational schools, or postsecondary educational institutions that can participate in a student aid program administered by the U.S. Department of Education. When in doubt as to whether a school is considered an Eligible Educational Institution, just ask the educational institution if it qualifies as one.

Unqualified withdrawals occurs when the account owner takes money out of the account for purposes other than higher education. If the account owner makes an unqualified withdrawal, he will have to pay a 10% penalty on the earnings in the account as well as federal and (probably) state income tax.