You're correct - Taxable plus 10% penalty unless rolled over, if not used for qualified expenses.. Per IRS Pub 970: "Rollovers - Any amount distributed from a Coverdell ESA isn't 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 doesn't 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.
Don't report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. These aren't taxable distributions."
https://www.irs.gov/publications/p970/index.html
