Coverdell ESA to 529 rollover

Forum|Forum|3 years ago
January 22, 2023
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I am the owner and beneficiary of a Coverdell ESA with less than <$10,000 total. I could not use these as qualified education expenses for myself, so I created a 529 with my spouse as the beneficiary and performed an indirect rollover, with the intention to use these funds as qualified education expenses on her student loans.

1) Do I need to report this on our joint return since, ultimately, the funds were used as qualified expenses for my spouse's student loans?

2) I see no Distribution Transfer option to indicate the indirect 529 rollover after inputting my CESA information - it only asks if it was rolled over to another CESA within 60 days. Where would I indicate the indirect rollover to the 529? I am using Turbotax Premier 2022 desktop.

Hal_Al

Employee

What do you mean by "indirect rollover"?

A direct rollover is when the money goes directly from the ESA to the 529 (Trustee to Trustee rollover). An indirect rollover is when you take the money out of the ESA (you have temporary possession of the money) and then later put it into a 529. To be valid, the indirect rollover must be completed within 60 days,

Q. Where would I indicate the indirect rollover to the 529?

A. You get a screen titled Distribution Transfer, which asks Was all or part of this distribution of $xxxx rollover to another qualified tuition program...... Check Yes and follow the interview.

Q. Do I need to report this on our joint return since, ultimately, the funds were used as qualified expenses for my spouse's student loans?

A. No. Not because it was used for loans, but because it was a proper rollover. After you go thru the TurboTax interview, it will enter nothing about distribution/rollover on the actual tax forms. But, it will produce a worksheet for your records.

If you didn't meet the 60 day requirement, you have a non qualified distribution. After you go thru the TT interview, TT will report the tax and penalty.

jlogan1Author

Q. Where would I indicate the indirect rollover to the 529?

A. You get a screen titled Distribution Transfer, which asks Was all or part of this distribution of $xxxx rollover to another qualified tuition program...... Check Yes and follow the interview.

Thanks, but I don't get this screen. I only get a screen asking if the Coverdell ESA was transferred to another Coverdell ESA within 60 days. Which is not right, since it was a 529 technically, but I believe the right answer is to choose "yes" here nonetheless.

Yes, it was a valid rollover, so it should not be generated the returns then as you mentioned.