Hi Hal Al,
Thanks for your response! For question#2, the ESA I overfunded is my son's Coverdell account, not a 529 plan. My son and my daughter both have Coverdell and 529 plan. So, I thought to make it easier, I should rollover my son's Coverdell account to my daughter once my son's done with college next year, but I don't know if this will incur any tax or not. Or should I transfer his Coverdell account to my daughter's 529 plan instead. Which would be the best option tax-wise?
Expanding question #1:
Q1a, I also learned that we can also do a lifetime rollover of $35k to my daughter's Roth IRA, which would be penalty and income tax free (would be a better choice to avoid income tax totally). I was thinking that we can have $35k from 529 plan rollover to her Roth IRA and the rest as a non qualified education expense withdrawal based on scholarship exception reporting. In that case, how should we file tax for the part with the Roth IRA rollover? And since we can only rollover $7k each year, it will take 5 years to complete the rollover. Do we then keep that amount in 529 plan and rollover each year? Will the 529 plan administrator know that this rollover is for the overfunding due to receiving scholarship?
Q1b, About the unused 529 plan rollover to Roth IRA, since the lifetime rollover limit is $35k, instead of rolling over my son's Coverdell account to my daughter's Coverdell or 529 plan, can I rollover his Coverdell account to a Roth IRA, or rollover his Coverdell account to his 529 plan and then to a Roth IRA? Since my son's did not receive any scholarship, and the overfunding is strictly due to a lower tuition from a state university, can he rollover the overfunding amount to a Roth IRA penalty and income tax free?
Thanks again for your help!
