Advanced Underwriting Consultants

Question of the Day – March 11

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: Can a Coverdell Education Savings Account be rolled over on a tax-free basis to another custodian?

Answer: Yes.  Coverdell accounts are eligible for 60 day rollover.  Here’s an excerpt from IRS Publication 970:

Rollovers

Any amount distributed from a Coverdell ESA is not taxable if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary’s family (including the beneficiary’s spouse) who is under age 30. This age limitation does not apply if the new beneficiary is a special needs beneficiary.

An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution.

Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. These are not taxable distributions.

Coverdell account distributions used for qualified education expenses are tax free.  Any distribution not used for qualified expenses come proportionally from basis and gain parts of the account.  The taxable portion is also subject to a 10% penalty tax.

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