Intro to ESAs
(Coverdell Education Savings Accounts)

Changes to the ESA

• If my child decides not to attend college, can I change the beneficiary on the account to another family member?
• Who qualifies as a "member of the family" for rollover purposes?
• If I want to move the assets in the ESA to a different financial institution, how do I accomplish this?
• Can we move the funds from my child’s ESA into a 529 plan?

If my child decides not to attend college, can I change the beneficiary on the account to another family member?

The responsible individual on the account can change the beneficiary at any time to another qualifying family member who has not yet attained the age of 30, subject to any restrictions imposed by the donor at the time the account is established.

Who qualifies as a "member of the family" for rollover purposes?

A qualifying family member is the beneficiary’s child, grandchild, stepchild, brother, sister, stepbrother, stepsister, nephew, niece, father, mother, grandfather, grandmother, stepfather, stepmother, uncles, aunt, first cousin, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. The spouse of any of these relations (except for a cousin) is also a qualifying family member. The beneficiary’s interest can also be transferred tax-free to a spouse or former spouse because of divorce. The new beneficiary must be under age 30 at the time of rollover.

If I want to move the assets in the ESA to a different financial institution, how do I accomplish this?

You may take a rollover distribution from an existing ESA without triggering tax or penalty if you deposit the funds within 60 days into a different ESA for the same beneficiary or for any other qualifying member of the family. This 60-day rollover may be accomplished only once in a 12-month period.

Can we move the funds from my child’s ESA into a 529 plan?

Yes. A withdrawal from an ESA is tax-free to the extent that contributions are made to a 529 account for the same beneficiary in the same taxable year. Apparently it doesn’t matter if you use your own funds in contributing to the 529 plan when accomplishing this rollover (so that you can be the account owner) or if you use the funds received by your child from the old ESA (in which case it my be more proper that your child or legal representative be the account owner of the 529 plan). Of course if you use your own funds, then you still need to think about what to do with the ESA withdrawal funds in the hands of your child. Your choice of approach may also have different gift tax ramifications.