coverdell esa

[siborg613]

I have been contributing to my sons Coverdell ESA for years (with after tax money) and in 2019 I, the recipient, took a distribution of $2000 to pay for his college expenses.

The 1099Q I received shows box 1 (Gross Distributions) of $2000 and $0 in boxes 2 and 3. It also shows FMV of 22,100.

When I enter the info in TT, my refund goes down as if i am being taxed on the $2000 even though its for a qualified distribution.

[e_thedrummer]

https://www.irs.gov/taxtopics/tc310

[KrisD15]

When you enter the 1099-Q, the program will ask if it was used for education expenses. You answer "Yes". It asks for whom and you would select "Someone not listed on this tax return". The distribution will not be taxed. 

If your son IS your dependent and listed on your return, enter the 1099-Q, the student's 1098-T and report any additional expenses, such as room and board. 

[siborg613]

Thanks for your response but I am still being taxed on the distribution.

Also, I received 1099Q's for all 4 of my children but only 3 are dependents on this return. Should the 4th put his 1099Q on his return?

[ColeenD3]

Please see this answer from MiriamF:

If you were the owner of the 529 or Coverdell, and your child is the beneficiary, then only the beneficiary reports the income. Both the owner and the beneficiary are issued copies of the 1099-Q. Distributions are exempt from tax when used for qualified education expenses.

If you were the beneficiary, and you were not a student in 2016, then the distribution is taxable. Only the education expenses of the beneficiary count as non-taxable expenses. In addition to the tax on the earnings, there is a 10% additional tax on the distribution.

More information about calculating the tax on nonqualified distributions can be found in Chapter 8 of Publication 970, Tax Benefits for Education.