list of expenses covered when using coverdell assets
Hello,
We have a client that wants to do a distribution out of her coverdell to pay for her daughter’s highschool education for a trip to France . it is an education trip.
Is this considered acceptable coverdell expense?
could you direct me to a list of expenses that is allowed using coverdell assets?
thanks.
Permalink Submitted by Denise Appleby on Mon, 2011-01-24 16:19
A good place to start is IRS Publication 970, available at http://www.irs.gov
Permalink Submitted by Alan Spross on Mon, 2011-01-24 16:44
Since this is probably an elective activity and not required by the school, it would not meet the definition of qualified expenses. See p 45 of Pub 970 attached and note that Supplementary items and service must be required or provided by the school, not just offered as an elective activity:
http://www.irs.gov/pub/irs-pdf/p970.pdf
This does not mean that the account should not be tapped for the trip, especially if the account is mostly contributions and does not contain much in earnings. For example, if the earnings in the account are only 10% of the balance, 90% of the distribution would be tax free and 10% taxable and subject to 10% penalty.