Coverdell ESA Basis

Forum|Forum|5 years ago
May 26, 2020
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I had a distribution from my Coverdell ESA in August 2019. TurboTax asks three questions under the "This Coverdell ESA" section. I'm unable to answer the 2nd question:

"Basis in this Coverdell ESA Account as of December 31, 2018"

I'm unsure what this means. Thoughts/guidance appreciated.

Hal_Al

Employee

If you took a distribution from your Coverdell ESA, you should have received a form 1099-Q with the earnings portion of the distribution in box 2 and the basis in box 3.

Some ESA custodians may leave boxes 2 & 3 blank and you have to enter from your own records. TurboTax can do that. But, you have to know the starting info ("Basis in this Coverdell ESA Account as of December 31, 2018"). You get that from your own records. Your year end 2019 statement, from the fund, may have it.

Hal_Al

Employee

Alternatively; you can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. You would have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You cannot double dip. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records, in case of an IRS inquiry.

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."