Coverdell – Rembursement Permitted, Different Tax Years
The IRS has evidently shut down the Coverdell IRA department. Not shocking.
A client has incurred expenses in 2013 for purposes of graduate school – roughly $10,000. Is it permissible to take a distribution in 2014 in order to reimburse for the 2013 tuition expense without paying taxes on the distribution?
Given the fact that she is living a.) off campus, and b.) not with her parents, I’m assuming that she could use a housing expense that is reasonable given the amount of time she spends at school (half time or full time) in order to be reimbursed for her ‘reasonable’ room and board expense… true? In essence, a half-time graduate student could be reimbursed for 1/2 of the ‘reasonable’ room and board expense based on her university’s room and board expense?
Any help would be appreciated.
Permalink Submitted by Alan - IRA critic on Thu, 2014-04-24 01:23
There were never IRA accounts and were renamed as Coverdell ESAs (Education Savings Accounts) a few years ago. Qualified education expenses are those paid in the same tax year as the Coverdell distribution. For tuition the IRS would be looking for a match of the 1098T issued by the institution with the 1099R for the ESA distribution. Therefore, a 2014 distribution will not match up with a 2013 expense. As for housing costs, there is no pro rating and if the client meets the half time student definition of the institution the rents would be a qualified expense, but again the expenses are for a different year than the Coverdell distribution. If there will be any 2014 qualified expenses, the distribution can be applied to those. And yes, the IRS has never paid much attention to Coverdell distribution taxation issues.