Conversion of Coverdell ESA to 529 plan, state tax benefits?

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Conversion of Coverdell ESA to 529 plan, state tax benefits?

Postby 168gr » Mon Jul 15, 2013 7:25 am

Years ago we opened "Education IRA" accounts for our kids at our credit union. These days I guess they're called Coverdell education savings accounts. The only investment options were CDs (around 3.5% so not too bad for this era) and they'll mature soon. We quit putting money in those accounts when we started funding 529 plans for them.

The Virginia 529 plan allows up to a $4,000 per year state income tax deduction, per beneficiary, which is very nice. The tax benefit for contributions over $4K even rolls over to future years, without any carryforward limits, which is even nicer.

I understand that a Coverdell account can be effectively rolled over into a 529, without tax penalty, if a withdrawal is made as a 'qualifying distribution' and deposited into the 529 that same calendar year. No problem.


My question is this: do funds taken from a Coverdell and rolled into a 529 plan qualify for the state income tax deduction? I would assume so ... in years past, our tax return had no spot to document the source of a 529 contribution, only that such a contribution was made. But you know what they say about assumptions.
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Re: Conversion of Coverdell ESA to 529 plan, state tax benef

Postby Tom_T » Mon Jul 15, 2013 9:57 am

This probably depends on the state. In New York, a transfer of a Coverdell into a 529 can absolutely be treated as a contribution for tax purposes.
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Re: Conversion of Coverdell ESA to 529 plan, state tax benef

Postby EmergDoc » Mon Jul 15, 2013 12:48 pm

In Utah too. I did an ESA when I was an AK resident (no state tax) then rolled it to the Utah 529 when I became a UT resident.
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Re: Conversion of Coverdell ESA to 529 plan, state tax benef

Postby 168gr » Tue Jul 16, 2013 1:43 pm

Thanks. As far as I can tell it'll be deductible in Virginia too.

I emailed the VA 529 people a few days ago, still waiting on an answer. I bet they'll just tell me to consult my tax adviser and dodge the question.
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