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Question

I have a 11k coverdell ESA I will use 5k to pay college spring tuition. Can I use the excess 6k and apply to her loans that will come due 30 days after graduation?

Forum|Forum|5 years ago
December 14, 2020
1 reply
0 views

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Employee

While this query is quite old at this point, the answer may benefit others.

The answer is (a) yes you can use it to pay loans, but (b) you will be paying tax plus a 10% additional penalty on some or all of that non-qualified distribution. IRS Publication 970 (https://www.irs.gov/pub/irs-pdf/p970.pdf) explains how to calculate the taxable portion. It also tells what options you may have for transferring that $6K to a different beneficiary instead who has or will have qualified educational expenses.