Coverdell ESA Distributions

How and when does money leave an IRA?

This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

When can a Coverdell ESA distribution be made?

The designated beneficiary (the student) of a Coverdell ESA must take distributions for qualified educational expenses before attaining age 30, unless the beneficiary is a Special Needs Student.

Can unused funds be transferred to another family member?

Yes. Any unused funds in the account may be transferred to another family member ¹ of the beneficiary who has not yet reached age 30 or who is a Special Needs Student, regardless of age. Coverdell ESAs, cannot be rolled over to any other type of IRA.

¹ A "family member," for purposes of a Coverdell ESA, includes the beneficiary and any of the following who are under age 30, or who are Special Needs Students, regardless of age: the beneficiary's spouse, the beneficiary's children and their descendants, the beneficiary's stepchildren, the beneficiary's siblings and their children, the beneficiary's step-siblings, parents and grandparents, the beneficiary's nieces, nephews, aunts and uncles, the beneficiary's stepparents, sons and daughters-in-law, parents-in-law and brothers or sisters-in-law, and spouses of all the foregoing, and first cousins (but not the spouse of a first cousin).

What are the limits as to how contributions and earnings may be used?

Contributions and earnings accumulate and can be used to fund qualified educational expenses. Qualified Coverdell ESA distributions include the following, and apply to expenses incurred in connection with the student's enrollment or attendance throughout grades K-12 at a public, private, or religious school:

Tuition, fees, and tutoring;
Special needs services for a "Special Needs Student." A Special Needs Student is a student who, because of a physical, mental, or emotional condition (including a demonstrable learning disability) requires additional time to complete his or her education;
Books, supplies, and equipment; and
Room and board, uniforms, transportation, and other supplementary items required or provided by the school; and purchase of any computer, technology, equipment, Internet access, or related services. This does not include expenses for computer software designed for sports, games, or hobbies, unless the software is predominately educational in nature.

Qualified post-secondary education (e.g., college, university, or vocational school) Coverdell ESA distributions include:

Tuition and fees;
Books, supplies and equipment; and
Expenses for special needs services.

Lord Abbett will waive (or otherwise pay) the yearly $10.00 custodial fee that would be charged each year on an ongoing basis to every new IRA account and, therefore, will not assess a custodial account fee effective in 2013 or any year afterward. Fund level fees and expenses are still applicable. Please see the current prospectus.