converdell assets used for Karate or Dance classes
we have a parent that wants to close the coverdell acct and used the assets to pay for Dance School or Karate classes? is that possible?
we have a parent that wants to close the coverdell acct and used the assets to pay for Dance School or Karate classes? is that possible?
Permalink Submitted by Clyde Wolf on Mon, 2009-07-20 23:45
Yes, they can do this, [b]HOWEVER[/b] part of the distribution will be taxable to the beneficiary because karate and dance classes are not qualified education expenses for Coverdell distributions.
To be tax free, the distriubtion must be used for qualified education purposes. Either for college or for secondary education. See IRS PUB 970, Page 44 Qualified Education Expenses, and Page 55 Are Distributions Taxable.
Perhaps a better idea would be to move the Coverdell to a 529 plan for the beneficiary.