Coverdell ESAs can be used only to pay for qualified education expenses, such as tuition and fees; the cost of books, supplies and other equipment; and in some situations, the cost of room and board.

Can I use Coverdell for another child?

You can’t switch the beneficiary of the Coverdell to just any child. The student has to be a member of your family. Coverdell rules also count your first cousins, nieces, nephews and in-laws all as family members eligible to receive Coverdell transfers from you. You can also transfer these funds to your spouse.

How do I use my Coverdell ESA money?

1. Complete a Coverdell ESA distribution request form from the financial institution that holds the Coverdell ESA.
2. Submit the withdrawal request to the financial institution.
3. Spend the proceeds on qualified education costs to avoid taxation.

What happens to leftover ESA money?

What happens to the ESA if a child doesn’t use the money? turns 30,* the unused portion can be rolled over to another eligible family member under age 30. If money remains in the ESA when the child turns 30, the ESA will be distributed and taxable to the child.

Does Coverdell affect financial aid?

The truth is, Coverdell ESAs do have a negative affect on aid eligibility, but the effect is minimal compared to other accounts. Just like your 529 plan, up to 5.64 percent of the value of a Coverdell ESA owned by a parent or dependent student will be included in the student’s Expected Family Contribution (EFC).

Can a Coverdell ESA be a custodial account?

A Coverdell Education Savings Account (ESA) allows taxpayers to establish custodial accounts using post-tax funds.

What was the original name of the Coverdell ESA?

The Coverdell ESA was originally introduced in 1997 as the Education IRA. In 2001, Congress expanded its benefits and renamed it the Coverdell Educational Savings Account (ESA).

How to calculate Coverdell ESA taxable distributions and basis?

Use IRS Worksheet 7-3, Coverdell ESA — Taxable Distributions and Basis. You can find this worksheet at the end of Chapter 7 in IRS Publication 970 (2010), “Tax Benefits for Education.”

What does Coverdell stand for in savings accounts?

A Coverdell education savings account (Coverdell ESA) is a trust or custodial account set up in the United States solely for paying qualified education expenses for the designated beneficiary of the account.