Coverdell and 529

Forum|Forum|4 years ago
March 21, 2022
1 reply
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Hi All,

If one of my children goes to private school, can I use the distribution from Coverdell (over contributed amount that I need to withdraw from 2020 plus earnings) to pay for her tuition (educational expense)? If so, how would IRS know the withdrawal amount were used for qualifying expenses? Thinking if do this way, I can avoid the 10% early distribution penalty. But I was told my case (excess contribution withdrawals) may not considered as early distribution. Any insights?

If I open a new 529 account, the 529 Rep also said the rollover (the over contributed amount) would be them initiating the money transfer from my Coverdell account, not that I can put into. Just want to see if Coverdell sends $ back to my bank account, how can I classify the $ was from the rollover from Coverdell to 529. Afraid once $ got to my bank account, more fees or penalty will be triggered. Please advise. Thank you!!

RobertB4444

The withdrawal of the excess contributions is what triggers the tax. The IRS doesn't care what you do with the money after that (provided you don't exceed any limitations elsewhere) but simply rolling the excess into a different account will not avoid the tax on the withdrawal of earnings on excess contributions. Your best bet is to spend the money on qualified education expenses which definitely do include the cost of private school education - as long as the education expenses are for the named beneficiary of the account the excess was withdrawn from.

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