If your kid is the beneficiary, and they don't make enough their first year out of school to pay income tax, or their rate is really low, it could be just the 10% penalty.
And, if your kids get scholarships, or they die, or you need it for special needs education for a disabled kid - those disbursements are penalty free. Plus you can transfer the money to another beneficiary - like grandkids - or possibly, in my case, my nephews.
I'm a strange person who thinks that paying too much tax because I have too much money is a really nice problem to have. I'd much rather pay 38% in taxes and another 10% in penalty on the disbursement, than have my kids pay for a student loan for 30 years. I'd rather have oversaved and have my kids be able to make their post high school choices without tuition being the biggest deciding factor, than have them end up at a school that's a poor fit because its affordable.
We have too much saved in our 529s for undergrad because my son chose tech school and my brother in law bequeathed some of his estate into our kids college funds (I hadn't planned for that, and had basically gotten done funding it) ....but my daughter is likely to go to law school or get an MBA - so, no, we aren't likely to have too much money - we'll just use it for grad school. Maybe I'll go get a Masters in History just for fun....I love school.
And if all else fails, it will still be in there when we are retired, and if we run out of money in our 401ks, our tax bracket will drop to the point where we won't lose 50%.....or it will still be there when we die and then I'm not paying the taxes at all - the estate will. If my kids are disappointed in their inheritance, I didn't raise them right.
As I said, nice problem to have.
(If you are thinking about 529s, do pick one where you can disburse direct to the beneficiary so you can use their tax rate. Not all have that feature.)