TAP-ping into earnings - and penalties

DEAR HARRY: After 12 years of participating in Pennsylvania's 529 TAP (Tuition Accounts Program) for my grandchildren, I was forced (for personal reasons) to liquidate the accounts. In one account, they sent me a Form 1099-Q indicating that I invested $15,219 and received $22,942 with $7,723 in earnings. That requires me to pay the IRS a 10 percent penalty of $772! That seems like a return that's way out of proportion, making the penalty way out of proportion, too. I had several other TAP accounts with nowhere near the amount of income, and, of course, a lower penalty. I got an extension to file my 1040 for other reasons, and I wanted to contact you before I contacted TAP. Are these numbers really as out of whack as they appear?

WHAT HARRY SAYS: You seem to be more hurt by the penalties than you are happy about the earnings. If you put all the money in at once, your return is 3.48 percent. That's not an unusually high return, even for a fairly good economy for half the period. You apparently think you got too much. Why are you looking the gift horse in the teeth? I'd be happier if the penalty were larger, because it means I got a higher return. I would be more concerned about the lower returns on your other accounts.

write to him at Daily News, 801 Market St., Philadelphia, PA 19107.