My 18 year old daughter will be entering a university and community college simultaneously. I had a Coverdell ESA that I wanted to use for tuition, room & board, and a computer for her. I went to the bank and accidentally closed the ESA and received a cashier's check for the entire account. (They asked, "Do you want to disburse the funds?" I answered, "yes," but I didn't realize they meant the entire account and closed the account.) I will need to redeposit (or rollover) the unused portion of the funds within 60 days to avoid the penalty, but in the meantime I need to pay for the higher education expenses.

  1. Do I need to deposit the cashier's check into a bank account in order to track the expenditures? Should it be a new or existing bank account? Or can I cash the check and just keep receipts? Basically I'm concerned with proving all of the higher education expenses and that I redeposited the unused amount into another ESA.
  2. I have already paid the tuition for the community college as it was due before I was ready to withdraw from the ESA. Can I just keep or transfer that amount from the ESA into my personal bank account? Or is there more to it?
  3. I accidentally contributed $100 to the ESA after my daughter turned 18, so the excess contribution is subject to a 6% penalty. Is it possible to rollover the excess amount into an ESA for my son (14)? Is it worth it to roll it over or a lot of hassle?
  4. The unused funds need to be rolled over into another ESA, however my daughter is now 18. Is it possible to rollover into an ESA for her, or will I not be able to open an ESA for her since she is now 18? Will I have to roll it over into an ESA for my son then?
  • I think the word is "disburse".
    – zeta-band
    Commented Jul 24, 2017 at 19:18
  • 1
    @zeta-band you are correct. I guess I am about to disperse the disbursement. grammarist.com/usage/disburse-disperse
    – Ryan
    Commented Jul 24, 2017 at 21:00
  • Why do you need to pay the expenses before opening the new account? Can't you just open the account and then pay out of that account? Also, your four questions are quite distinct. Only question #1 really has to do with this accidental disbursement; the others could be asked as general questions about Coverdell ESAs.
    – BrenBarn
    Commented Jul 25, 2017 at 7:05
  • @BrenBarn I don't need to pay the expenses before opening a new account, however I already paid tuition to one school (question #2). Basically I ended up with a cashier's check I wasn't expecting and then I need to figure out how to actually use it to pay the expenses. I wasn't sure about how the easiest way to go about that and if I need to prove expenditures/transactions from an account or if receipts would suffice. Good point on the specific questions; I may ask #3 and #4 as new questions.
    – Ryan
    Commented Jul 25, 2017 at 15:10

1 Answer 1


From the IRS Pub 970

Any amount distributed from a Coverdell ESA isn't taxable if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary's family (including the beneficiary's spouse) who is under age 30. This age limitation doesn't apply if the new beneficiary is a special needs beneficiary.

I read this as saying you should open a new account. Deposit the check, use what you need to for this semester, then re-deposit the balance. Keep in mind, there are a few tax breaks that only apply if you pay out of pocket, not from the ESA or 529. I just paid the tuition, but paid $4000 out of pocket to get my $2500 tax credit.

  • I forgot about the tuition tax break/credit and now that adds another wrinkle to the situation. :/ Thanks for the info. One challenge is that I won't know next semester's tuition before I will have to redeposit the unused funds, but I should be able to estimate the tuition.
    – Ryan
    Commented Jul 25, 2017 at 15:13
  • I came close to missing that as well. I knew that after 18 years of saving, there would be something to watch out for, and that was it. I would just do the math on 2017 calendar year, and redeposit the balance. When January bills are due next semester, you can withdraw again. Commented Jul 25, 2017 at 15:29

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .