Coverdell ESA
Do distributions from a Coverdell ESA need to show on the 1040 if used for college costs?My software seems to want to record it as taxable with a 10% penalty or not have it show on the return at all.
Do distributions from a Coverdell ESA need to show on the 1040 if used for college costs?My software seems to want to record it as taxable with a 10% penalty or not have it show on the return at all.
Permalink Submitted by Alan Spross on Sat, 2008-04-12 02:02
The software is correct, although the entire distribution should not be taxable, as some of it is a return of contributions. If the distribution is for qualified expenses and therefore tax free, it should not be reported at all.
However, if part is taxable and subject to penalty on the earnings allocation of the distribution, the taxable amount only is reported on line 21 of Form 1040. The penalty is shown on Form 5329, Part II and the total penalties go on line 60 of Form 1040.