Internal Revenue Code:Sec. 530. Coverdell education savings accounts
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Contents |
Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter F - Exempt Organizations
PART VIII - HIGHER EDUCATION SAVINGS ENTITIES
Statute
Sec. 530. Coverdell education savings accounts
(a) General rule
A Coverdell education savings account shall be exempt from
taxation under this subtitle. Notwithstanding the preceding
sentence, the Coverdell education savings account shall be subject
to the taxes imposed by section 511 (relating to imposition of tax
on unrelated business income of charitable organizations).
(b) Definitions and special rules
For purposes of this section -
(1) Coverdell education savings account
The 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.
(C) No part of the trust assets will be invested in life
insurance contracts.
(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 general
The 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
Such term shall include any contribution to a qualified
tuition program (as defined in section 529(b)) on behalf of the
designated beneficiary (as defined in section 529(e)(1)); but
there shall be no increase in the investment in the contract
for purposes of applying section 72 by reason of any portion of
such contribution which is not includible in gross income by
reason of subsection (d)(2).
(3) Qualified elementary and secondary education expenses
(A) In general
The 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 (as defined in section 170(e)(6)(F)(i)) 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
The term ''school'' means any school which provides
elementary education or secondary education (kindergarten
through grade 12), as determined under State law.
(4) Time when contributions deemed made
An individual shall be deemed to have made a contribution to an
education individual retirement account on the last day of the
preceding taxable year if the contribution is made on account of
such taxable year and is made not later than the time prescribed
by law for filing the return for such taxable year (not including
extensions thereof).
(c) Reduction in permitted contributions based on adjusted gross
income
(1) In general
In 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
For purposes of paragraph (1), the term ''modified adjusted
gross income'' means the adjusted gross income of the taxpayer
for the taxable year increased by any amount excluded from gross
income under section 911, 931, or 933.
(d) Tax treatment of distributions
(1) In general
Any distribution shall be includible in the gross income of the
distributee in the manner as provided in section 72.
(2) Distributions for qualified education expenses
(A) In general
No amount shall be includible in gross income under paragraph
(1) if the qualified education expenses of the designated
beneficiary during the taxable year are not less than the
aggregate distributions during the taxable year.
(B) Distributions in excess of expenses
If such aggregate distributions exceed such expenses during
the taxable year, the amount otherwise includible in gross
income under paragraph (1) shall be reduced by the amount which
bears the same ratio to the amount which would be includible in
gross income under paragraph (1) (without regard to this
subparagraph) as the qualified education expenses bear to such
aggregate distributions.
(C) Coordination with Hope and Lifetime Learning credits and
qualified tuition programs
For purposes of subparagraph (A) -
(i) Credit coordination
The 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 programs
If, 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
No deduction, credit, or exclusion shall be allowed to the
taxpayer under any other section of this chapter for any
qualified education expenses to the extent taken into account
in determining the amount of the exclusion under this
paragraph.
(3) Special rules for applying estate and gift taxes with respect
to account
Rules similar to the rules of paragraphs (2), (4), and (5) of
section 529(c) shall apply for purposes of this section.
(4) Additional tax for distributions not used for educational
expenses
(A) In general
The tax imposed by this chapter for any taxable year on any
taxpayer who receives a payment or distribution from a
Coverdell education savings account which is includible in
gross income shall be increased by 10 percent of the amount
which is so includible.
(B) Exceptions
Subparagraph (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 date
Subparagraph (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
Paragraph (1) shall not apply to any amount paid or distributed
from a Coverdell education savings account to the extent that the
amount received is paid, not later than the 60th day after the
date of such payment or distribution, into another Coverdell
education savings account for the benefit of the same beneficiary
or a member of the family (within the meaning of section
529(e)(2)) of such beneficiary who has not attained age 30 as of
such date. The preceding sentence shall not apply to any payment
or distribution if it applied to any prior payment or
distribution during the 12-month period ending on the date of the
payment or distribution.
(6) Change in beneficiary
Any change in the beneficiary of a Coverdell education savings
account shall not be treated as a distribution for purposes of
paragraph (1) if the new beneficiary is a member of the family
(as so defined) of the old beneficiary and has not attained age
30 as of the date of such change.
(7) Special rules for death and divorce
Rules similar to the rules of paragraphs (7) and (8) of section
220(f) shall apply. In applying the preceding sentence, members
of the family (as so defined) of the designated beneficiary shall
be treated in the same manner as the spouse under such paragraph
(8).
(8) Deemed distribution on required distribution date
In any case in which a distribution is required under
subsection (b)(1)(E), any balance to the credit of a designated
beneficiary as of the close of the 30-day period referred to in
such subsection for making such distribution shall be deemed
distributed at the close of such period.
(e) Tax treatment of accounts
Rules similar to the rules of paragraphs (2) and (4) of section
408(e) shall apply to any Coverdell education savings account.
(f) Community property laws
This section shall be applied without regard to any community
property laws.
(g) Custodial accounts
For purposes of this section, a custodial account shall be
treated as a trust if the assets of such account are held by a bank
(as defined in section 408(n)) or another person who demonstrates,
to the satisfaction of the Secretary, that the manner in which he
will administer the account will be consistent with the
requirements of this section, and if the custodial account would,
except for the fact that it is not a trust, constitute an account
described in subsection (b)(1). For purposes of this title, in the
case of a custodial account treated as a trust by reason of the
preceding sentence, the custodian of such account shall be treated
as the trustee thereof.
(h) Reports
The trustee of a Coverdell education savings account shall make
such reports regarding such account to the Secretary and to the
beneficiary of the account with respect to contributions,
distributions, and such other matters as the Secretary may
require. The reports required by this subsection shall be filed at
such time and in such manner and furnished to such individuals at
such time and in such manner as may be required.
Sources
(Added Pub. L. 105-34, title II, Sec. 213(a), Aug. 5, 1997, 111
Stat. 813; amended Pub. L. 105-206, title VI, Sec.
6004(d)(1)-(3)(A), (5)-(8), July 22, 1998, 112 Stat. 793, 794; Pub.
L. 106-554, Sec. 1(a)(7) (title III, Sec. 319(6)), Dec. 21, 2000,
114 Stat. 2763, 2763A-646; Pub. L. 107-16, title IV, Sec.
401(a)(1), (b)-(g)(1), (2)(C), 402(a)(4)(A), (C), June 7, 2001, 115
Stat. 57-61; Pub. L. 107-22, Sec. 1(a)(1)-(5), July 26, 2001, 115
Stat. 196.)
Amendment of Section
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
Miscellaneous
AMENDMENTS
2004 - Subsec.404(a),PL108-311, amended Sec.530(d)(2)(C)
by striking "higher" after "qualified".
2004 - Subsec.406(b),PL108-311, amended Sec.530(d)(4)(B)
(iii) by deleting "account holder" and inserting
"designated beneficiary".
2003 - Subsec. (d)(4)(B)(iv). Pub. L. 108-121, Sec. 107, amends
by redesignation clause (iv) as (v), and inserting a new
clause (iv). Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31, 2002.
2002 - Subsec.(d)(4)(B)(iv). Pub.L. 107-147, Sec. 411(f) amended
by striking ``because the taxpayer elected under paragraph (2)(C)
to waive the application of paragraph (2)'' and inserting
``by application of paragraph (2)(C)(i)(II)''.
2001 - Pub. L. 107-22, Sec. 1(a)(5), amended section catchline
generally, substituting ''Coverdell education savings'' for
''Education individual retirement''.
Subsec. (a). Pub. L. 107-22, Sec. 1(a)(2), substituted ''A
Coverdell education savings account'' for ''An education individual
retirement account'' and ''the Coverdell education savings
account'' for ''the education individual retirement account''.
Subsec. (b)(1). Pub. L. 107-22, Sec. 1(a)(1), (3), in heading,
substituted ''Coverdell education savings account'' for ''Education
individual retirement account'' and, in introductory provisions,
substituted '' 'Coverdell education savings account' '' for ''
'education individual retirement account' '' and ''designated as a
Coverdell education savings account'' for ''designated as an
education individual retirement account''.
Pub. L. 107-16, Sec. 401(d), 901, temporarily inserted concluding
provisions. See Effective and Termination Dates of 2001 Amendment
note below.
Pub. L. 107-16, Sec. 401(c)(3)(A), 901, temporarily struck out
''higher'' before ''education expenses'' in introductory
provisions. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (b)(1)(A)(iii). Pub. L. 107-16, Sec. 401(a)(1), 901,
temporarily substituted ''$2,000'' for ''$500''. See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (b)(2). Pub. L. 107-16, Sec. 401(c)(1), 901, temporarily
amended heading and text of par. (2) generally, substituting
present provisions for provisions which defined ''qualified higher
education expenses'' as having the meaning given such term by
section 529(e)(3), reduced as provided in section 25A(g)(2), and
including amounts paid or incurred to purchase tuition credits or
certificates, or to make contributions to an account, under a
qualified State tuition program for the benefit of the beneficiary
of the account. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (b)(2)(B). Pub. L. 107-16, Sec. 402(a)(4)(A), (C), 901,
in heading, temporarily substituted ''Qualified tuition'' for
''Qualified State tuition'' and in text, temporarily substituted
''qualified tuition'' for ''qualified State tuition''. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (b)(4). Pub. L. 107-16, Sec. 401(c)(2), 901, temporarily
added par. (4). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (b)(5). Pub. L. 107-16, Sec. 401(f)(1), 901, temporarily
added par. (5). See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (c)(1). Pub. L. 107-16, Sec. 401(e), 901, temporarily
substituted ''In the case of a contributor who is an individual,
the maximum amount the contributor'' for ''The maximum amount which
a contributor'' in introductory provisions. See Effective and
Termination Dates of 2001 Amendment note below.
Subsec. (c)(1)(A)(ii). Pub. L. 107-16, Sec. 401(b)(1), 901,
temporarily substituted ''$190,000'' for ''$150,000''. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (c)(1)(B). Pub. L. 107-16, Sec. 401(b)(2), 901,
temporarily substituted ''$30,000'' for ''$10,000''. See Effective
and Termination Dates of 2001 Amendment note below.
Subsec. (d)(2). Pub. L. 107-16, Sec. 401(c)(3)(B), 901,
temporarily struck out ''higher'' before ''education'' in heading.
See Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(2)(A), (B). Pub. L. 107-16, Sec. 401(c)(3)(A), 901,
temporarily struck out ''higher'' before ''education''. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(2)(C). Pub. L. 107-16, Sec. 401(g)(1), 901,
temporarily amended heading and text of subpar. (C) generally.
Prior to amendment, text read as follows: ''A taxpayer may elect to
waive the application of this paragraph for any taxable year.'' See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(2)(D). Pub. L. 107-16, Sec. 401(g)(2)(C), 901, in
heading, temporarily substituted ''deduction, credit, or
exclusion'' for ''credit or deduction'' and in text, temporarily
substituted '', credit, or exclusion'' for ''or credit''. See
Effective and Termination Dates of 2001 Amendment note below.
Subsec. (d)(4)(A). Pub. L. 107-22, Sec. 1(a)(1), substituted ''a
Coverdell education savings account'' for ''an education individual
retirement account''.
Subsec. (d)(4)(C). Pub. L. 107-16, Sec. 401(f)(2)(B), 901,
temporarily substituted ''certain date'' for ''due date of return''
in heading. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (d)(4)(C)(i). Pub. L. 107-16, Sec. 401(f)(2)(A), 901,
temporarily added cl. (i) and struck out former cl. (i) which read
as follows: ''such distribution is made on or before the day
prescribed by law (including extensions of time) for filing the
beneficiary's return of tax for the taxable year or, if the
beneficiary is not required to file such a return, the 15th day of
the 4th month of the taxable year following the taxable year;
and''. See Effective and Termination Dates of 2001 Amendment note
below.
Subsec. (d)(5). Pub. L. 107-22, Sec. 1(a)(1), (4), substituted
''distributed from a Coverdell education savings account'' for
''distributed from an education individual retirement account'' and
''another Coverdell education savings account'' for ''another
education individual retirement account''.
Subsec. (d)(6). Pub. L. 107-22, Sec. 1(a)(1), substituted ''a
Coverdell education savings account'' for ''an education individual
retirement account''.
Subsec. (e). Pub. L. 107-22, Sec. 1(a)(4), substituted
''Coverdell education savings account'' for ''education individual
retirement account''.
Subsec. (h). Pub. L. 107-22, Sec. 1(a)(1), substituted ''a
Coverdell education savings account'' for ''an education individual
retirement account''.
2000 - Subsec. (d)(4)(B)(iii). Pub. L. 106-554 substituted a
comma for a semicolon before ''or'' at end.
1998 - Subsec. (b)(1). Pub. L. 105-206, Sec. 6004(d)(1), inserted
''an individual who is'' before ''the designated beneficiary'' in
introductory provisions.
Subsec. (b)(1)(E). Pub. L. 105-206, Sec. 6004(d)(2)(A), amended
subpar. (E) generally. Prior to amendment, subpar. (E) read as
follows: ''Upon the death of the designated beneficiary, any
balance to the credit of the beneficiary shall be distributed
within 30 days after the date of death to the estate of such
beneficiary.''
Subsec. (d)(1). Pub. L. 105-206, Sec. 6004(d)(3)(A), substituted
''section 72'' for ''section 72(b)''.
Subsec. (d)(2)(D). Pub. L. 105-206, Sec. 6004(d)(5), added
subpar. (D).
Subsec. (d)(4)(B)(iv). Pub. L. 105-206, Sec. 6004(d)(6), added
cl. (iv).
Subsec. (d)(4)(C). Pub. L. 105-206, Sec. 6004(d)(7), substituted
''Contributions'' for ''Excess contributions'' in heading and
amended text of introductory provisions and cl. (i) generally.
Prior to amendment, text read as follows: ''Subparagraph (A) shall
not apply to the distribution of any contribution made during a
taxable year on behalf of a designated beneficiary to the extent
that such contribution exceeds $500 if -
''(i) such distribution is received on or before the day
prescribed by law (including extensions of time) for filing such
contributor's return for such taxable year, and''.
Subsec. (d)(5). Pub. L. 105-206, Sec. 6004(d)(8)(A), added first
sentence and struck out former first sentence which read as
follows: ''Paragraph (1) shall not apply to any amount paid or
distributed from an education individual retirement account to the
extent that the amount received is paid into another education
individual retirement account for the benefit of the same
beneficiary or a member of the family (within the meaning of
section 529(e)(2)) of such beneficiary not later than the 60th day
after the date of such payment or distribution.''
Subsec. (d)(6). Pub. L. 105-206, Sec. 6004(d)(8)(B), inserted
before period at end ''and has not attained age 30 as of the date
of such change''.
Subsec. (d)(7). Pub. L. 105-206, Sec. 6004(d)(2)(B), inserted at
end ''In applying the preceding sentence, members of the family (as
so defined) of the designated beneficiary shall be treated in the
same manner as the spouse under such paragraph (8).''
Subsec. (d)(8). Pub. L. 105-206, Sec. 6004(d)(2)(C), added par.
(8).
EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENTS
Amendment by Pub. L. 107-22 effective July 26, 2001, see section
1(c) of Pub. L. 107-22, set out as a note under section 26 of this
title.
Amendment by section 401(a)(1), (b)-(g)(1), (2)(C) of Pub. L.
107-16 applicable to taxable years beginning after Dec. 31, 2001,
see section 401(h) of Pub. L. 107-16, set out as a note under
section 25A of this title.
Amendment by section 402(a)(4)(A), (C) of Pub. L. 107-16
applicable to taxable years beginning after Dec. 31, 2001, see
section 402(h) of Pub. L. 107-16, set out as a note under section
72 of this title.
Amendment by Pub. L. 107-16 inapplicable to taxable, plan, or
limitation years beginning after Dec. 31, 2010, and the Internal
Revenue Code of 1986 to be applied and administered to such years
as if such amendment had never been enacted, see section 901 of
Pub. L. 107-16, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1997, see section 213(f) of Pub. L. 105-34, set out as an Effective
Date of 1997 Amendment note under section 26 of this title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 26, 72, 135, 221, 222,
529, 4973, 4975, 6693 of this title.
