The funds must be used for the student.
The student must be the beneficiary.
If you are the beneficiary, and you used it for a student other than yourself, it's all taxable.
According to the IRS:
"A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the Designated beneficiary (defined later) of the account. When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created. The document creating and governing the account must be in writing and must satisfy the following requirements. 1. The trustee or custodian must be a bank or an entity approved by the IRS.
2. The document must provide that the trustee or custodian can only accept a contribution that meets all of the following conditions. a. The contribution is in cash. b. The contribution is made before the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. c. The contribution wouldn't result in total contributions for the year (not including rollover contributions) being more than $2,000.
3. Money in the account can't be invested in life insurance contracts.
4. Money in the account can't be combined with other property except in a common trust fund or common investment fund.
5. The balance in the account generally must be distributed within 30 days after the earlier of the following events. a. The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. b. The beneficiary's death. Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. The expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses. Designated beneficiary. This is the individual named in the document creating the trust or custodial account to receive the benefit of the funds in the account."
PLEASE CLICK HERE for IRS Pub 970
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