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taxmap/pubs/p970-034.htm#TXMP017da6f4 Rollovers and Other Transfers

Rollover and Other Transfers

Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. The beneficiary's interest can be transferred to a spouse or former spouse because of divorce.

taxmap/pubs/p970-034.htm#TXMP7c3493f5 Rollovers

Rollover

Any amount distributed from a Coverdell ESA is not taxable if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary's family (including the beneficiary's spouse) who is under age 30. This age limitation does not apply if the new beneficiary is a special needs beneficiary.

An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution.

taxmap/pubs/p970-034.htm#TXMP2ceb0bf5 Members of the beneficiary's family.

For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary.

1. Child or descendant of a child.
2. Brother, sister, stepbrother, or stepsister.
3. Father or mother or ancestor of either.
4. Stepfather or stepmother.
5. Son or daughter of a brother or sister.
6. Brother or sister of father or mother.
7. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
8. The spouse of any individual listed above.
9. First cousin.

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Example.

When Aaron graduated from college last year he had $5,000 left in his Coverdell ESA. He wanted to give this money to his younger sister, who was still in high school. In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his sister's Coverdell ESA within 60 days of the distribution.

Only one rollover per Coverdell ESA is allowed during the 12-month period ending on the date of the payment or distribution.

taxmap/pubs/p970-034.htm#TXMP5c5b43af Changing the Designated Beneficiary

Designated Beneficiary, Change

The designated beneficiary can be changed to a member of the beneficiary's family (defined above). There are no tax consequences if, at the time of the change, the new beneficiary is under age 30 or a special needs beneficiary.

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Example.

Assume the same situation as in the last example. Instead of closing his Coverdell ESA and paying the distribution into his sister's Coverdell ESA, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his sister.

taxmap/pubs/p970-034.htm#TXMP1e64173b Transfer Because of Divorce

Transfer Because of Divorce

If a spouse or former spouse receives a Coverdell ESA under a divorce or separation instrument, it is not a taxable transfer. After the transfer, the spouse or former spouse treats the Coverdell ESA as his or her own.

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Example.

In their divorce settlement, Peg received her ex-husband's Coverdell ESA. In this process, the account was transferred into her name. Peg now treats the funds in this Coverdell ESA as if she were the original owner.

Previous Page:  Publication 970 - Tax Benefits for Education - Contributions Next Page:  Publication 970 - Tax Benefits for Education - Distributions Use     to find additional instances of index items.