J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

33.11 Distributions From Coverdell ESAs

Caution: As noted in the Law Alert at 33.10, less favorable ESA distribution rules will apply in 2013 unless Congress extends the 2012 rules. Without the extension, elementary and secondary school expenses through grade 12 will not be qualified expenses in 2013. Also, the rule allowing an ESA of a special needs beneficiary to continue past age 30 will not apply. See the e-Supplement at jklasser.com for the post-2012 rules.

Tax treatment of 2012 ESA distributions.

A designated beneficiary of a Coverdell ESA is not taxed on withdrawals made during 2012 that do not exceed qualified education expenses. If the total withdrawals in 2012 exceed the qualified education expenses (see below), a portion of the withdrawals is taxable to the beneficiary. The taxable portion is the amount of the excess withdrawal allocable to earnings; see the Example below and the worksheet in IRS Publication 970.

Qualified education expenses for 2012.

In addition to qualified higher education expenses (as defined at 33.6 for QTPs), qualified expenses for ESA distribution purposes include contributions to a QTP (33.5) on behalf of the ESA beneficiary. Also qualifying for 2012 are elementary and secondary education expenses, kindergarten through grade 12. The elementary or secondary school may be a public, private, or religious school. Eligible expenses for elementary and secondary school students include tuition, fees, academic tutoring, books, supplies, special services ...