Coverdell logistical questions

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Incendiary
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Joined: Sun Jun 19, 2016 9:42 am

Coverdell logistical questions

Post by Incendiary » Wed Oct 11, 2017 10:04 am

Does anyone know if Coverdells have beneficiaries and successors like 529s do? My son's name is listed on a Coverdell that is in my name. He is therefore the beneficiary and I am the account holder. I was told that I cannot designate a successor, however, like I can with a 529, in the event of my death.

JBTX
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Re: Coverdell logistical questions

Post by JBTX » Wed Oct 11, 2017 4:53 pm

Don’t know the answer. I have coverdells for 2 kids.

You can move coverdell to 529 if you so choose. I will probably eventually do that because I think 529 s are more flexible.

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Taz
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Location: Florida

Re: Coverdell logistical questions

Post by Taz » Thu Oct 12, 2017 5:51 am

It seems that you could simply change the beneficiary or transfer to an eligible family member as listed in the link below.
From IRS Pub 970 (https://www.irs.gov/publications/p970#e ... 1000178449):
"Rollovers and Other Transfers
Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. The beneficiary's interest can be transferred to a spouse or former spouse because of divorce.

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."

Changing the Designated Beneficiary
The designated beneficiary can be changed. See Members of the beneficiary's family , earlier. There aren't any tax consequences if, at the time of the change, the new beneficiary is under age 30 or is a special needs beneficiary.
The destination matters.

Incendiary
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Re: Coverdell logistical questions

Post by Incendiary » Sun Oct 15, 2017 3:56 pm

If you die?

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Taz
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Location: Florida

Re: Coverdell logistical questions

Post by Taz » Sun Oct 15, 2017 5:34 pm

Not a lawyer but according to the same IRS Pub: "However, you can make unlimited transfers from one Coverdell ESA trustee directly to another Coverdell ESA trustee because such transfers aren't considered to be distributions or rollovers."

The estate ought to be able to transfer to a new custodian/trustee. I transfered one to my son (the beneficiary) in grad school so he could deal with tax implications of scholarships and tuition waivers.

Sorry I'm not more help.
The destination matters.

jerryk68
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Re: Coverdell logistical questions

Post by jerryk68 » Mon Oct 16, 2017 7:59 am

JBTX wrote:
Wed Oct 11, 2017 4:53 pm
Don’t know the answer. I have coverdells for 2 kids.

You can move coverdell to 529 if you so choose. I will probably eventually do that because I think 529 s are more flexible.
I use Coverdell, UGMA and 529 plans to save for my grandkid's higher education. Each plan offers features, benefits and restrictions. For example, the 529 can not be used for travel to see a school but the UGMA and Coverdell can be used for travel. Likewise, some states offer tax advantages for the 529 plan where the UGMA & Coverdell do not. Usually, the 529 gets more conservative moving into bonds and cash as the child gets older. I find this feature more restrictive but some people find it more stabilizing.

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