- Withdrawals from 529 plans are not taxed at the federal and state level as long as you follow all the rules for qualifying expenses. When the 529 plan funds are used to pay for qualified education expenses, you should receive Form 1099-Q and Form 1098-T which will list the amount of the 529 plan distribution and how much was used to pay for college tuition and fees. You’ll have to report these form to the IRS.