Coverdell education savings accounts -- formerly referred to as education IRAs -- help families save for future schooling costs by offering tax-sheltered growth. Plus, the money comes out tax-free as long as it pays for qualified education expenses, which include not only college, but also grade school and high school costs.
You can't switch the beneficiary of the Coverdell to just any child -- the child has to be a member of your family. Obviously, that includes any of your biological children, adopted children or stepchildren. However, if also includes any of your nieces and nephews, first cousins or even siblings. For example, say you finished up graduate school and, by some minor miracle, had money left in your Coverdell. You could transfer it to a younger sibling still in school or your own child.
Only those under age 30 can be named as the new beneficiary of a Coverdell. While this age limit won't be a problem for your own kids, it might limit your ability to transfer it to one of your siblings. For example, if you're done, but your brother is still finishing up med school at age 31, you can't transfer your remaining funds to him.
You can move the money in a Coverdell with a trustee-to-trustee transfer just by filling out a transfer request form. The form requires the account information for the existing Coverdell, your information, the information for the new beneficiary and how you want the money invested in the new account. Once you submit the form, the bank does the rest.
If you're wanting to switch beneficiaries, but not banks or investments, you can just change the beneficiary on the Coverdell without moving the account. For example, you could tell your bank to change the beneficiary from your son to your daughter and that would be sufficient to make the shift. Alternatively, you could use a rollover. Take a distribution from the Coverdell and then deposit the proceeds in a Coverdell for the other child within 60 days. There's no tax consequences, or even tax reporting, as long as you complete it on time, but you're limited to just one rollover during any 12-month period.
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