It is my understanding correct that if I withdraw $10k to pay private high school tuition for my child, it will be federally tax-free & penalty-free, but will be treated differently for California purposes.
1. If the $10k included $9k of principal & $1k of earnings (proportional, based on acct totals), is my understanding correct that only the $1k of earnings is subject to tax & to the 2.5% penalty for California purposes? If incorrect, please correct me.
2. Would I report the $1k on Cal Schedule CA as a Fed-Cal reconciling item? Where would the penalty be reported?
Thank you for your help,