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February 16, 2009

Qualified distribution- Education Savings Account (ESA )

Your Guide

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Definition

A distribution from an education savings account (ESA) that is used to pay for qualified education expenses at an eligible education institution. Generally, qualified education expenses are those required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. For purposes of Coverdell ESAs, the expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses.

The designated beneficiary is the child for whom the ESA is established.

Referring Cite

IRC §530, IRS Publication 970

Additional Helpful Information

Assets in an ESA must be fully distributed within 30 days after the designated beneficiary reaches age30. The assets can be rolled over or transferred to an eligible family member who is under age 30.

The age 30 rule does not apply to ‘special needs’ beneficiaries.

For nonqualified distributions, the earnings are subject to taxes and the 10% early distribution penalty.

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Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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