Savingforcollege.com
Topic Options
#22006 - 03/04/03 01:40 PM Coverdell ESA distributions
pschreur Offline
Junior Member

Registered: 06/01/01
Posts: 5
In 10/02, my granddaughter received an $1150 distribution from her Coverdell ESA. Her 2002 education expenses exceded the distribution, thus no taxable income. Your website states that the distribution is to be reported on Form 8606. However, this form has been revised for 2002 and no longer has provision for reporting Coverdell distributions. Does anyone know how the distribution, for which she received a Form 1099-R, is to be reported on her 2002 tax return? Thanks in advance.

Top
#22007 - 03/04/03 02:12 PM Re: Coverdell ESA distributions
Joe Hurley Offline

Member

Registered: 01/07/00
Posts: 2739
Loc: Pittsford, NY, USA
Thanks for noticing that I need to update that point on the web site, now that the IRS has confused us some more and changed the reporting instructions. You should download Publication 970 from the irs.gov Web site for full instructions and worksheets relating to the Coverdell distributions. Any portion of the distribution that is taxable will have to be reported as miscellaneous income on Line 21 of your granddaughter's Form 1040. But since you state you have more than enough education expenses for 2002, there will be nothing to report on Line 21. Your granddaughter's tax preparer should complete the worksheet in Pub 970 to keep track of her basis in the account going forward.

Joe

Top
#22008 - 03/04/03 04:15 PM Re: Coverdell ESA distributions
pschreur Offline
Junior Member

Registered: 06/01/01
Posts: 5
Thanks for the prompt reply. Any thoughts on how the IRS is going to react when they can't match her 1099-R distribution amount with what is shown on her tax return?

Top
#22009 - 03/04/03 05:51 PM Re: Coverdell ESA distributions
Joe Hurley Offline

Member

Registered: 01/07/00
Posts: 2739
Loc: Pittsford, NY, USA
I hope the IRS computers won't send out a million notices, but I wouldn't bet my kid's college account on it. Actually, I believe the 1099-R is supposed to show a special code on it (Code M?) so that the IRS computers can be programmed to recognize the discrepancy.

Joe

Top
#22010 - 03/04/03 10:13 PM Re: Coverdell ESA distributions
pschreur Offline
Junior Member

Registered: 06/01/01
Posts: 5
Her 1099-R does have the code letter "M" in the appropriate box. I'll make sure she keeps all the documentation and the worksheet to send to the IRS if she gets a notice. If she does, I'll let you know. Again, thanks for your help. I really appreciate it.
Paul Schreur

Top


Moderator:  Joe Hurley 

All Content Copyright © 2013 Saving for College, LLC, All Rights Reserved, Terms of Use.