A friend was going to take out some 529 money to pay off his daughter's student loan (it wasn't a lot compared to the 529 account). He realized this was gonna get hit by penalty and taxes, but his investment guy told him you take out the gains first of a 529, which means for his account the entire amount withdrawn would be subject to the 10% penalty and taxes. I said I'm pretty certain that's wrong and his gains on his withdraw would be the same proportion as the gains in his account when he makes the withdraw. Have I missed something or is he listening to bad advice? If he only has to pay gains on the percentage then its really not that huge a penalty and he may just do that.