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Coverdell ESA Distribution


Coverdell ESA Distribution Rules

 
  • Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board at an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law. Eligible institutions also include any college, university, vocational school or other postsecondary educational institution eligible to participate in a student aid program administered by the. Department of Education. Virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions are eligible.
  • The balance in the account generally must be distributed within 30 days after the earlier of the following events.
    • The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary.
    • The beneficiary's death.
  • The Hope and Lifetime Learning Credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.
  • If the distribution exceeds adjusted qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% penalty. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.
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