"It's one thing [to take out the money] if the child didn't go to college and is never going to go to college, or if they went to college and there's money left over," said Mark Kantrowitz, vice president of strategy for Cappex.com, a college and scholarship search site.
Even then it may be a smarter financial move to keep the money invested for a sibling, a parent's future educational needs or even a grandchild's education. But if you expect your child will go to college, taking out the money for other spending just hurts your ability to cover that cost down the line.
"Your greatest asset is time," said Kantrowitz. "So if you take out the money early on, and you're telling yourself you're going to put the money back in, you've reduced the amount of time for the money to compound."
Some of parents' bad behavior may stem from misconceptions about college savings accounts. In the T. Rowe Price survey, 42 percent of parents mistakenly believe that they lose any money left in a 529 if their child doesn't go to college or if there is money left over after their child graduates. Another 21 percent erroneously believe there's no penalty to withdrawing 529 funds for purposes other than education.
Tapping college savings for non-education expenses won't leave you with as much money as you'd think. You'll owe federal taxes and a 10 percent penalty on the earnings portion of withdrawals and may also owe state taxes if you'd previously claimed a deduction or credit for those contributions.
The exception: If your child receives a scholarship, you can withdraw funds equal to that without paying a penalty. But you'll still owe taxes on the earnings.