26 USC 530 - Coverdell education savings accounts

Collapse to view only § 530. Coverdell education savings accounts

§ 529. Qualified tuition programs
§ 529A. Qualified ABLE programs
§ 530. Coverdell education savings accounts

§ 529. Qualified tuition programs

(a) General rule

(b) Qualified tuition programFor purposes of this section—

(1) In generalThe term “qualified tuition program” means a program established and maintained by a State or agency or instrumentality thereof or by 1 or more eligible educational institutions—

(A) under which a person—

(i) may purchase tuition credits or certificates on behalf of a designated beneficiary which entitle the beneficiary to the waiver or payment of qualified higher education expenses of the beneficiary, or

(ii) in the case of a program established and maintained by a State or agency or instrumentality thereof, may make contributions to an account which is established for the purpose of meeting the qualified higher education expenses of the designated beneficiary of the account, and

(B) which meets the other requirements of this subsection.

Except to the extent provided in regulations, a program established and maintained by 1 or more eligible educational institutions shall not be treated as a qualified tuition program unless such program provides that amounts are held in a qualified trust and such program has received a ruling or determination that such program meets the applicable requirements for a qualified tuition program. For purposes of the preceding sentence, the term “qualified trust” means a trust which is created or organized in the United States for the exclusive benefit of designated beneficiaries and with respect to which the requirements of paragraphs (2) and (5) of section 408(a) are met.

(2) Cash contributions

(3) Separate accounting

(4) Limited investment direction

(5) No pledging of interest as security

(6) Prohibition on excess contributions

(1) In generalExcept as otherwise provided in this subsection, no amount shall be includible in gross income of—

(A) a designated beneficiary under a qualified tuition program, or

(B) a contributor to such program on behalf of a designated beneficiary,

with respect to any distribution or earnings under such program.

(2) Gift tax treatment of contributionsFor purposes of chapters 12 and 13—

(A) In generalAny contribution to a qualified tuition program on behalf of any designated beneficiary—

(i) shall be treated as a completed gift to such beneficiary which is not a future interest in property, and

(ii) shall not be treated as a qualified transfer under section 2503(e).

(B) Treatment of excess contributions

(3) Distributions

(A) In general

(B) Distributions for qualified higher education expensesFor purposes of this paragraph—

(i) In-kind distributions

(ii) Cash distributionsIn the case of distributions not described in clause (i), if—(I) such distributions do not exceed the qualified higher education expenses (reduced by expenses described in clause (i)), no amount shall be includible in gross income, and(II) in any other case, the amount otherwise includible in gross income shall be reduced by an amount which bears the same ratio to such amount as such expenses bear to such distributions.

(iii) Exception for institutional programs

(iv) Treatment as distributions

(v) Coordination with American Opportunity and Lifetime Learning creditsThe total amount of qualified higher education expenses with respect to an individual for the taxable year shall be reduced—(I) as provided in section 25A(g)(2), and(II) by the amount of such expenses which were taken into account in determining the credit allowed to the taxpayer or any other person under section 25A.

(vi) Coordination with Coverdell education savings accountsIf, with respect to an individual for any taxable year—(I) the aggregate distributions to which clauses (i) and (ii) and section 530(d)(2)(A) apply, exceed(II) the total amount of qualified higher education expenses otherwise taken into account under clauses (i) and (ii) (after the application of clause (v)) for such year,

the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under clauses (i) and (ii) and section 530(d)(2)(A).

(i) RolloversSubparagraph (A) shall not apply to that portion of any distribution which, within 60 days of such distribution, is transferred—(I) to another qualified tuition program for the benefit of the designated beneficiary,(II) to the credit of another designated beneficiary under a qualified tuition program who is a member of the family of the designated beneficiary with respect to which the distribution was made, or(III) before January 1, 2026, to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary.

Subclause (III) shall not apply to so much of a distribution which, when added to all other contributions made to the ABLE account for the taxable year, exceeds the limitation under section 529A(b)(2)(B)(i).

(ii) Change in designated beneficiaries

(iii) Limitation on certain rollovers

(D) Special rule for contributions of refunded amounts

(E) Special rollover to roth iras from long-term qualified tuition programs

(i) In generalIn the case of a distribution from a qualified tuition program of a designated beneficiary which has been maintained for the 15-year period ending on the date of such distribution, subparagraph (A) shall not apply to so much the portion of such distribution which—(I) does not exceed the aggregate amount contributed to the program (and earnings attributable thereto) before the 5-year period ending on the date of the distribution, and(II) is paid in a direct trustee-to-trustee transfer to a Roth IRA maintained for the benefit of such designated beneficiary.

(ii) Limitations(I) Annual limitation(II) Aggregate limitation

(4) Estate tax treatment

(A) In general

(B) Amounts includible in estate of designated beneficiary in certain cases

(5) Other gift tax rulesFor purposes of chapters 12 and 13—

(A) Treatment of distributions

(B) Treatment of designation of new beneficiaryThe taxes imposed by chapters 12 and 13 shall apply to a transfer by reason of a change in the designated beneficiary under the program (or a rollover to the account of a new beneficiary) unless the new beneficiary is—

(i) assigned to the same generation as (or a higher generation than) the old beneficiary (determined in accordance with section 2651), and

(ii) a member of the family of the old beneficiary.

(6) Additional tax

(7) Treatment of elementary and secondary tuition

(8) Treatment of certain expenses associated with registered apprenticeship programs

(9) Treatment of qualified education loan repayments

(A) In general

(B) Limitation

(i) Separate accounting

(ii) Sibling defined

(d) Reports

(1) In general

(2) Rollover distributions

(e) Other definitions and special rulesFor purposes of this section—

(1) Designated beneficiaryThe term “designated beneficiary” means—

(A) the individual designated at the commencement of participation in the qualified tuition program as the beneficiary of amounts paid (or to be paid) to the program,

(B) in the case of a change in beneficiaries described in subsection (c)(3)(C), the individual who is the new beneficiary, and

(C) in the case of an interest in a qualified tuition program purchased by a State or local government (or agency or instrumentality thereof) or an organization described in section 501(c)(3) and exempt from taxation under section 501(a) as part of a scholarship program operated by such government or organization, the individual receiving such interest as a scholarship.

(2) Member of familyThe term “member of the family” means, with respect to any designated beneficiary—

(A) the spouse of such beneficiary;

(B) an individual who bears a relationship to such beneficiary which is described in subparagraphs (A) through (G) of section 152(d)(2);

(D) any first cousin of such beneficiary.

(3) Qualified higher education expenses

(A) In generalThe term “qualified higher education expenses” means—

(i) tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution,

(ii) expenses for special needs services in the case of a special needs beneficiary which are incurred in connection with such enrollment or attendance, and

(iii) expenses for the purchase of computer or peripheral equipment (as defined in section 168(i)(2)(B)), computer software (as defined in section 197(e)(3)(B)), or Internet access and related services, if such equipment, software, or services are to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution.

Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year shall, in the aggregate, include not more than $10,000 in expenses described in subsection (c)(7) incurred during the taxable year.

(B) Room and board included for students who are at least half-time

(i) In general

(ii) LimitationThe amount treated as qualified higher education expenses by reason of clause (i) shall not exceed—(I) the allowance (applicable to the student) for room and board included in the cost of attendance (as defined in section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), as in effect on the date of the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001) as determined by the eligible educational institution for such period, or(II) if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged by such institution for room and board costs for such period.

(4) Application of section 514

(5) Eligible educational institutionThe term “eligible educational institution” means an institution—

(A) which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on the date of the enactment of this paragraph, and

(B) which is eligible to participate in a program under title IV of such Act.

(f) Regulations

(Added Pub. L. 104–188, title I, § 1806(a), Aug. 20, 1996, 110 Stat. 1895; amended Pub. L. 105–34, title II, § 211(a), (b), (d), (e)(2)(A), title XVI, § 1601(h)(1)(A), (B), Aug. 5, 1997, 111 Stat. 810, 812, 1092; Pub. L. 105–206, title VI, § 6004(c)(2), (3), July 22, 1998, 112 Stat. 793; Pub. L. 106–554, § 1(a)(7) [title III, § 319(5)], Dec. 21, 2000, 114 Stat. 2763, 2763A–646; Pub. L. 107–16, title IV, § 402(a)(1)–(3), (4)(A), (C), (D), (b)(1), (c)–(g), June 7, 2001, 115 Stat. 60–63; Pub. L. 107–22, § 1(b)(3)(C), July 26, 2001, 115 Stat. 197; Pub. L. 107–147, title IV, § 417(11), Mar. 9, 2002, 116 Stat. 56; Pub. L. 108–311, title II, § 207(21), title IV, § 406(a), Oct. 4, 2004, 118 Stat. 1178, 1189; Pub. L. 109–135, title IV, § 412(ee)(3), Dec. 21, 2005, 119 Stat. 2639; Pub. L. 109–280, title XIII, § 1304(b), Aug. 17, 2006, 120 Stat. 1110; Pub. L. 111–5, div. B, title I, § 1005(a), Feb. 17, 2009, 123 Stat. 316; Pub. L. 113–295, div. B, title I, § 105(a), Dec. 19, 2014, 128 Stat. 4064; Pub. L. 114–113, div. Q, title III, § 302(a)(1), (b)(1), (c)(1), Dec. 18, 2015, 129 Stat. 3086; Pub. L. 115–97, title I, §§ 11025(a), 11032(a), Dec. 22, 2017, 131 Stat. 2076, 2081; Pub. L. 115–141, div. U, title I, § 101(l)(15), title IV, § 401(a)(127), (128), Mar. 23, 2018, 132 Stat. 1165, 1190; Pub. L. 116–94, div. O, title III, § 302(a), (b)(1), Dec. 20, 2019, 133 Stat. 3175; Pub. L. 117–328, div. T, title I, § 126(a), (c), Dec. 29, 2022, 136 Stat. 5316, 5317.)

§ 529A. Qualified ABLE programs

(a) General rule

(b) Qualified ABLE programFor purposes of this section—

(1) In generalThe term “qualified ABLE program” means a program established and maintained by a State, or agency or instrumentality thereof—

(A) under which a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for such taxable year, to an ABLE account which is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account,

(B) which limits a designated beneficiary to 1 ABLE account for purposes of this section, and

(2) Cash contributionsA program shall not be treated as a qualified ABLE program unless it provides that no contribution will be accepted—

(A) unless it is in cash, or

(B) except in the case of contributions under subsection (c)(1)(C), if such contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the sum of—

(i) the amount in effect under section 2503(b) for the calendar year in which the taxable year begins, plus

(ii) in the case of any contribution by a designated beneficiary described in paragraph (7) before January 1, 2026, the lesser of—(I) compensation (as defined by section 219(f)(1)) includible in the designated beneficiary’s gross income for the taxable year, or(II) an amount equal to the poverty line for a one-person household, as determined for the calendar year preceding the calendar year in which the taxable year begins.

For purposes of this paragraph, rules similar to the rules of section 408(d)(4) (determined without regard to subparagraph (B) thereof) shall apply. A designated beneficiary (or a person acting on behalf of such beneficiary) shall maintain adequate records for purposes of ensuring, and shall be responsible for ensuring, that the requirements of subparagraph (B)(ii) are met.

(3) Separate accounting

(4) Limited investment direction

(5) No pledging of interest as security

(6) Prohibition on excess contributions

(7) Special rules related to contribution limitFor purposes of paragraph (2)(B)(ii)—

(A) Designated beneficiaryA designated beneficiary described in this paragraph is an employee (including an employee within the meaning of section 401(c)) with respect to whom—

(i) no contribution is made for the taxable year to a defined contribution plan (within the meaning of section 414(i)) with respect to which the requirements of section 401(a) or 403(a) are met,

(ii) no contribution is made for the taxable year to an annuity contract described in section 403(b), and

(iii) no contribution is made for the taxable year to an eligible deferred compensation plan described in section 457(b).

(B) Poverty line

(1) Distributions

(A) In general

(B) Distributions for qualified disability expensesFor purposes of this paragraph, if distributions from a qualified ABLE program—

(i) do not exceed the qualified disability expenses of the designated beneficiary, no amount shall be includible in gross income, and

(ii) in any other case, the amount otherwise includible in gross income shall be reduced by an amount which bears the same ratio to such amount as such expenses bear to such distributions.

(i) Rollovers from ABLE accounts

(ii) Change in designated beneficiaries

(iii) Limitation on certain rollovers

(2) Gift tax rulesFor purposes of chapters 12 and 13—

(A) ContributionsAny contribution to a qualified ABLE program on behalf of any designated beneficiary—

(i) shall be treated as a completed gift to such designated beneficiary which is not a future interest in property, and

(ii) shall not be treated as a qualified transfer under section 2503(e).

(B) Treatment of distributions

(3) Additional tax for distributions not used for disability expenses

(A) In general

(B) Exception

(C) Contributions returned before certain dateSubparagraph (A) shall not apply to the distribution of any contribution made during a taxable year on behalf of the designated beneficiary if—

(i) such distribution is received on or before the day prescribed by law (including extensions of time) for filing such designated beneficiary’s return for such taxable year, and

(ii) such distribution is accompanied by the amount of net income attributable to such excess contribution.

Any net income described in clause (ii) shall be included in gross income for the taxable year in which such excess contribution was made.

(4) Loss of ABLE account treatment

(d) Reports

(1) In general

(2) Certain aggregated information

(3) Notice of establishment of ABLE account

(4) Electronic distribution statements

(5) Requirements

(e) Other definitions and special rulesFor purposes of this section—

(1) Eligible individualAn individual is an eligible individual for a taxable year if during such taxable year—

(A) the individual is entitled to benefits based on blindness or disability under title II or XVI of the Social Security Act, and such blindness or disability occurred before the date on which the individual attained age 26, or

(B) a disability certification with respect to such individual is filed with the Secretary for such taxable year.

(2) Disability certification

(A) In generalThe term “disability certification” means, with respect to an individual, a certification to the satisfaction of the Secretary by the individual or the parent or guardian of the individual that—

(i) certifies that—(I) the individual has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, or is blind (within the meaning of section 1614(a)(2) of the Social Security Act), and(II) such blindness or disability occurred before the date on which the individual attained age 26, and

(ii) includes a copy of the individual’s diagnosis relating to the individual’s relevant impairment or impairments, signed by a physician meeting the criteria of section 1861(r)(1) of the Social Security Act.

(B) Restriction on use of certification

(3) Designated beneficiary

(4) Member of family

(5) Qualified disability expenses

(6) ABLE account

(f) Transfer to State

(g) RegulationsThe Secretary shall prescribe such regulations or other guidance as the Secretary determines necessary or appropriate to carry out the purposes of this section, including regulations—

(1) to enforce the 1 ABLE account per eligible individual limit,

(2) providing for the information required to be presented to open an ABLE account,

(3) to generally define qualified disability expenses,

(4) developed in consultation with the Commissioner of Social Security, relating to disability certifications and determinations of disability, including those conditions deemed to meet the requirements of subsection (e)(1)(B),

(5) to prevent fraud and abuse with respect to amounts claimed as qualified disability expenses,

(6) under chapters 11, 12, and 13 of this title, and

(7) to allow for transfers from one ABLE account to another ABLE account.

(Added Pub. L. 113–295, div. B, title I, § 102(a), Dec. 19, 2014, 128 Stat. 4056; amended Pub. L. 114–113, div. Q, title III, § 303(a)–(c), Dec. 18, 2015, 129 Stat. 3087; Pub. L. 115–97, title I, § 11024(a), Dec. 22, 2017, 131 Stat. 2075; Pub. L. 115–141, div. U, title I, § 101(o), title IV, § 401(a)(129), (130), Mar. 23, 2018, 132 Stat. 1166, 1190; Pub. L. 117–328, div. T, title I, § 124(a), Dec. 29, 2022, 136 Stat. 5314.)

§ 530. Coverdell education savings accounts

(a) General rule

(b) Definitions and special rulesFor purposes of this section—

(1) Coverdell education savings accountThe term “Coverdell education savings account” means a trust created or organized in the United States exclusively for the purpose of paying the qualified education expenses of an individual who is the designated beneficiary of the trust (and designated as a Coverdell education savings account at the time created or organized), but only if the written governing instrument creating the trust meets the following requirements:

(A) No contribution will be accepted—

(i) unless it is in cash,

(ii) after the date on which such beneficiary attains age 18, or

(iii) except in the case of rollover contributions, if such contribution would result in aggregate contributions for the taxable year exceeding $2,000.

(B) The trustee is a bank (as defined in section 408(n)) or another person who demonstrates to the satisfaction of the Secretary that the manner in which that person will administer the trust will be consistent with the requirements of this section or who has so demonstrated with respect to any individual retirement plan.

(D) The assets of the trust shall not be commingled with other property except in a common trust fund or common investment fund.

(E) Except as provided in subsection (d)(7), any balance to the credit of the designated beneficiary on the date on which the beneficiary attains age 30 shall be distributed within 30 days after such date to the beneficiary or, if the beneficiary dies before attaining age 30, shall be distributed within 30 days after the date of death of such beneficiary.

The age limitations in subparagraphs (A)(ii) and (E), and paragraphs (5) and (6) of subsection (d), shall not apply to any designated beneficiary with special needs (as determined under regulations prescribed by the Secretary).

(2) Qualified education expenses

(A) In generalThe term “qualified education expenses” means—

(i) qualified higher education expenses (as defined in section 529(e)(3)), and

(ii) qualified elementary and secondary education expenses (as defined in paragraph (3)).

(B) Qualified tuition programs

(3) Qualified elementary and secondary education expenses

(A) In generalThe term “qualified elementary and secondary education expenses” means—

(i) expenses for tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, supplies, and other equipment which are incurred in connection with the enrollment or attendance of the designated beneficiary of the trust as an elementary or secondary school student at a public, private, or religious school,

(ii) expenses for room and board, uniforms, transportation, and supplementary items and services (including extended day programs) which are required or provided by a public, private, or religious school in connection with such enrollment or attendance, and

(iii) expenses for the purchase of any computer technology or equipment or Internet access and related services, if such technology, equipment, or services are to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is in school.

Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature.

(B) School

(4) Time when contributions deemed made

(1) In generalIn the case of a contributor who is an individual, the maximum amount the contributor could otherwise make to an account under this section shall be reduced by an amount which bears the same ratio to such maximum amount as—

(A) the excess of—

(i) the contributor’s modified adjusted gross income for such taxable year, over

(ii) $95,000 ($190,000 in the case of a joint return), bears to

(B) $15,000 ($30,000 in the case of a joint return).

(2) Modified adjusted gross income

(d) Tax treatment of distributions

(1) In general

(2) Distributions for qualified education expenses

(A) In general

(B) Distributions in excess of expenses

(C) Coordination with American Opportunity and Lifetime Learning credits and qualified tuition programsFor purposes of subparagraph (A)—

(i) Credit coordinationThe total amount of qualified education expenses with respect to an individual for the taxable year shall be reduced—(I) as provided in section 25A(g)(2), and(II) by the amount of such expenses which were taken into account in determining the credit allowed to the taxpayer or any other person under section 25A.

(ii) Coordination with qualified tuition programsIf, with respect to an individual for any taxable year—(I) the aggregate distributions during such year to which subparagraph (A) and section 529(c)(3)(B) apply, exceed(II) the total amount of qualified education expenses (after the application of clause (i)) for such year,

the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under subparagraph (A) and section 529(c)(3)(B).

(D) Disallowance of excluded amounts as deduction, credit, or exclusion

(3) Special rules for applying estate and gift taxes with respect to account

(4) Additional tax for distributions not used for educational expenses

(A) In general

(B) ExceptionsSubparagraph (A) shall not apply if the payment or distribution is—

(i) made to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary,

(ii) attributable to the designated beneficiary’s being disabled (within the meaning of section 72(m)(7)),

(iii) made on account of a scholarship, allowance, or payment described in section 25A(g)(2) received by the designated beneficiary to the extent the amount of the payment or distribution does not exceed the amount of the scholarship, allowance, or payment,

(iv) made on account of the attendance of the designated beneficiary at the United States Military Academy, the United States Naval Academy, the United States Air Force Academy, the United States Coast Guard Academy, or the United States Merchant Marine Academy, to the extent that the amount of the payment or distribution does not exceed the costs of advanced education (as defined by section 2005(e)(3) of title 10, United States Code, as in effect on the date of the enactment of this section) attributable to such attendance, or

(v) an amount which is includible in gross income solely by application of paragraph (2)(C)(i)(II) for the taxable year.

(C) Contributions returned before certain dateSubparagraph (A) shall not apply to the distribution of any contribution made during a taxable year on behalf of the designated beneficiary if—

(i) such distribution is made before the first day of the sixth month of the taxable year following the taxable year, and

(ii) such distribution is accompanied by the amount of net income attributable to such excess contribution.

Any net income described in clause (ii) shall be included in gross income for the taxable year in which such excess contribution was made.

(5) Rollover contributions

(6) Change in beneficiary

(7) Special rules for death and divorce

(8) Deemed distribution on required distribution date

(9) Military death gratuity

(A) In generalFor purposes of this section, the term “rollover contribution” includes a contribution to a Coverdell education savings account made before the end of the 1-year period beginning on the date on which the contributor receives an amount under section 1477 of title 10, United States Code, or section 1967 of title 38 of such Code, with respect to a person, to the extent that such contribution does not exceed—

(i) the sum of the amounts received during such period by such contributor under such sections with respect to such person, reduced by

(ii) the amounts so received which were contributed to a Roth IRA under section 408A(e)(2) or to another Coverdell education savings account.

(B) Annual limit on number of rollovers not to apply

(e) Tax treatment of accounts

(f) Community property laws

(g) Custodial accounts

(h) Reports

(Added Pub. L. 105–34, title II, § 213(a), Aug. 5, 1997, 111 Stat. 813; amended Pub. L. 105–206, title VI, § 6004(d)(1)–(3)(A), (5)–(8), July 22, 1998, 112 Stat. 793, 794; Pub. L. 106–554, § 1(a)(7) [title III, § 319(6)], Dec. 21, 2000, 114 Stat. 2763, 2763A–646; Pub. L. 107–16, title IV, §§ 401(a)(1), (b)–(g)(1), (2)(C), 402(a)(4)(A), (C), June 7, 2001, 115 Stat. 57–61; Pub. L. 107–22, § 1(a)(1)–(5), July 26, 2001, 115 Stat. 196; Pub. L. 107–147, title IV, § 411(f), Mar. 9, 2002, 116 Stat. 46; Pub. L. 108–121, title I, § 107(a), Nov. 11, 2003, 117 Stat. 1339; Pub. L. 108–311, title IV, §§ 404(a), 406(b), Oct. 4, 2004, 118 Stat. 1188, 1189; Pub. L. 109–135, title IV, § 412(ff), Dec. 21, 2005, 119 Stat. 2639; Pub. L. 110–245, title I, § 109(c), June 17, 2008, 122 Stat. 1632; Pub. L. 115–141, div. U, title I, § 101(l)(16), title IV, § 401(a)(131), (b)(23), Mar. 23, 2018, 132 Stat. 1165, 1190, 1203.)