We have 529 accounts for our 3 children. Our son is attending a private school for learning disabilities this year and we need to withdraw $10k to cover his final tuition installment. The three accounts we have are in three different states New York (our son) and Connecticut/Nebraska for each of our daughters. We live in Connecticut and my husband works in Connecticut and we file a Connecticut tax return. Years ago when we contributed to my son's NY plan, my husband worked in NY and we took a NY state tax deduction for the contributions.
My question is regarding the State tax implications. If I am reading correctly, NY will not recognize the withdrawal from his account as qualified and we will have state tax implications for the NY state tax deduction we took? And then since Connecticut also treats it as unqualified then we will have tax on the earnings? And potential penalties? It looks like Nebraska is working on recognizing as qualified but I'm assuming that it won't help me to take the money from there since it is in my daughter's name and because we live/file in Connecticut?
And my son will be continuing into a private high school next year so we are going to need to take out another $10k per year for the next four years.