Coverdell Education IRA
Client contributes $10k to Ed IRA, grows to $15k. Child goes to college, he uses $5k, will the remaining $10k, essentially his cost basis, be penalized / taxed should it be removed for non-educational purposes?
Client contributes $10k to Ed IRA, grows to $15k. Child goes to college, he uses $5k, will the remaining $10k, essentially his cost basis, be penalized / taxed should it be removed for non-educational purposes?
Permalink Submitted by Alan - IRA critic on Wed, 2024-09-11 17:33
If basis was 2/3 of the balance when the 5k was distributed for qualified expenses, 2/3 of that distribution came from basis and 1/3 from earnings, even though that distribution is tax free. The amount of basis remaining in the plan is 6,667 of the 10k distribution, leaving 3333 as the taxable amount also subject to the 10% penalty.