Can a Coverdell ESA be rolled over to a 529 College Savings?
Can you rollover a Coverdell ESA to a 529 College Savings Plan without suffering the 10% early withdrawal penalty and taxes on the amount rolled over? I have questioned 2 different sources and ones source says yes you n and one says no you can only take a distribution for the Coverdell account, suffer the 10% penalty and taxes and then reinvest the money into the 529!
Permalink Submitted by Alan Spross on Thu, 2008-05-15 00:10
Well, it’s not handled as a rollover in the fashion of an IRA rollover. However, the tax aspects can function as such. Note the following pasted from Savingforcollege.com, the prime source of 529 plan info:
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Can we move the funds from my child’s ESA into a 529 plan?
Yes. A withdrawal from an ESA is tax-free to the extent that contributions are made to a 529 account for the same beneficiary in the same taxable year.
Apparently it doesn’t matter if you use your own funds in contributing to the 529 plan when accomplishing this rollover (so that you can be the account owner) or if you use the funds received by your child from the old ESA (in which case it my be more proper that your child or legal representative be the account owner of the 529 plan). Of course if you use your own funds, then you still need to think about what to do with the ESA withdrawal funds in the hands of your child. Your choice of approach may also have different gift tax ramifications.
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