Q. So, I thought to make it easier, I should rollover my son's Coverdell ESA account to my daughter's ESA once my son's done with college next year, but I don't know if this will incur any tax or not.
A. Yes that is allowed. No tax will be due and the rollover does not need to be reported. Reference: IRS Pub 970, pages 43-44.
Q. Or should I transfer his Coverdell account to my daughter's 529 plan instead?
A. No. That does not appear to be allowed, directly. But, once the money is in her ESA, it can be rolled over to her 529 plan.
Q. How should we file tax for the a 529 to Roth IRA rollover?
A. You don't report it on your tax forms. It is a tax free distribution. There is nowhere to enter this in TurboTax.
Q. 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?
A. Yes, if that's your plan. If you do a $7000 Roth rollover the first year, you can do something different in the following years. You're not locked in to doing Roth rollovers later.
Q. Will the 529 plan administrator know that this rollover is for the overfunding due to receiving scholarship?
A. No. They don't need to know. There is no special code that goes on the form 1099-Q. That's for you to report to the IRS on form 5329.
Q. Can I rollover my son's Coverdell ESA account to a Roth IRA?
A. No. I cannot find where an ESA is eligible Publication 970 only says that a 529 is eligible for the Roth IRA rollover.
Q. Can we rollover his Coverdell account to his 529 plan and then to a Roth IRA, penalty and income tax free?A. Yes.
