What are ramifications of closing a Coverdell ESA before a child is ready to start college?

[munger]

So, I screwed up … I closed a couple Coverdell ESAs last month that I've had for my daughters for 12 years. They don't have much in them, about $1500 each. I totally forgot that this is supposed to be for educational expenses only, I was going to just put the money in their savings accounts. I think if I do that I'll have to file taxes for them, etc. If I roll them into new ESAs will I be able to avoid a tax hit? Or, maybe I can reopen the accounts, I haven't even cashed the checks yet. I have 529 plans for them but from what I understand that's not good enough, it has to be an ESA, true? Thanks.

[munger]

Thanks. I rolled it over into new accounts.

[Rainman12]

You're correct - Taxable plus 10% penalty unless rolled over, if not used for qualified expenses.. Per IRS Pub 970: "Rollovers - Any amount distributed from a Coverdell ESA isn't taxable if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary's family (including the beneficiary's spouse) who is under age 30. This age limitation doesn't apply if the new beneficiary is a special needs beneficiary.

An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution.

Don't report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. These aren't taxable distributions." https://www.irs.gov/publications/p970/index.html