What to Know About ESA Transfers and Rollovers
by Tricia Held, QKA, CIP, CISP
What options are available for moving ESA assets?
Coverdell education savings account (ESA) assets may be transferred or rolled over to another ESA or to a qualified tuition program (i.e., Internal Revenue Code Section 529 plan) tax and penalty free. But 529 plan assets may not be rolled over to an ESA. The movement of assets between ESAs may be for the benefit of either the designated beneficiary (the child for whom the ESA was established) or a qualified family member of the designated beneficiary.
If done as a trustee-to-trustee transfer, there is no limit to the number of ESA transfers that may be made for a designated beneficiary. Unlike IRAs, transfers between ESAs and to 529 plans are reportable to the IRS. IRS representatives have commented to Ascensus, however, that transfers between ESAs and to 529 plans to a qualified family member within the same financial organization are nonreportable.
As a rollover, the movement of ESA assets must be completed within 60 days after the date of distribution. A designated beneficiary is allowed only one ESA rollover per 12 months. This 12-month period begins the day after the individual receives the distribution to be rolled over.
Unless otherwise provided for in the ESA plan agreement, the responsible individual—the person with the power to direct the ESA—is the one who initiates or authorizes the movement of ESA assets.
Can transfer or rollover contributions be made after the designated beneficiary turns age 18?
Although regular ESA contributions can only be made until the designated beneficiary turns 18, transfer and rollover contributions may be made until age 30. Within 30 days after the designated beneficiary turns age 30, any assets remaining in the ESA should be distributed to the designated beneficiary or transferred or rolled over to a qualified family member’s ESA. Note that the age 30 restriction is waived for designated beneficiaries identified as having special needs.
Who is a qualified family member?
The following qualified family members can receive a rollover or transfer from an ESA if under age 30 (unless a special-needs individual).
Child or descendent of child, stepchild, or eligible foster child
Brother, sister, stepbrother, or stepsister
Father, mother, stepfather, or stepmother
Aunt or uncle
Niece or nephew
Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
Spouse of any person described above