Custodial UTGM transfer to custodial ESA/Coverdell

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Custodial UTGM transfer to custodial ESA/Coverdell

Post by StackOfOnes » Sat Jan 12, 2019 10:28 am

Hello all,

Longtime lurker, first time poster.

Long story short, I currently exceed the income limits to directly contribute to an ESA for my child. I am profoundly disappointed Vanguard no longer offers ESAs. I had to go with Schwab.

According to various sites I read, the safest way for me to backdoor contributions to the ESA is to set up a custodial account for my child, gift them the 2K annual contribution into that account, and then have the funds from that account transferred into the child's ESA. This way it is clearly the child's money funding the account (who is obviously below the income limitations).

Reference article: ... imit/11592

So I did all that. But now Schwab is saying a transfer from one custodial account (ie the child's savings/brokerage account) to another custodial account (the ESA) is NOT allowed by the IRS and they won't allow it. Both accounts have the same child's name and me as the current parent/overseer.

Has anyone else had any luck with this? I know several people have had to use Schwab since Vanguard stopped allowing ESAs.

I know I can gift the money to a grandparent who could then gift it to the child's ESA, but the paper trail was stronger with the above option.

Any thoughts appreciated!


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