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Level 2

What happens if I can't fully determine the basis of a Coverdell ESA distribution?

In 2017, I received a distribution for my daughter's Coverdell ESA.

The distribution was used entirely to pay for eligible college expenses (which I can prove), so that's not a problem.

The problem is that I can't fully recreate the basis of the distribution.

I have custodian/brokerage (etc.) records going back 20 years, but I still have a couple of gaps in between where I don't have any records. I have Form 5498 from various custodians, so that helps. Some of these custodians are no longer in business.

Can I just use the Form 5498s that I do have and report that as the basis? Since I used the entire distribution to pay for eligible college expenses, I shouldn't be taxed on the distribution regardless of the true basis. Or what do I do?

Thank you.

1 Reply
Level 9

What happens if I can't fully determine the basis of a Coverdell ESA distribution?

Since you used the funds for qualified expenses, the basis is less important (and will continue to be as long as you have the qualified expenses).  You can use the amounts that you know because once again, this will not put you in an underreported situations.  I would recommend making a note now and keeping it with your tax records of what you did just in case.

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