Earnings on your NC 529 Account are free from North Carolina and federal taxes
An important advantage of saving in an NC 529 Account is that earnings on your account aren’t subject to North Carolina or federal taxes as long as they, along with your contributions, are used to help pay for Qualified Higher Education Expenses (QHEE). Tuition, fees, room and board, books, computers and required equipment are examples of expenses considered qualified.
The earnings portion of withdrawals not used for QHEE expenses is subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax benefits may be contingent on meeting other requirements.
The features of a qualified tuition program are complex and involve significant tax issues. For more detail, visit the CFNC.org page here.