Some primary and secondary education expenses must be required and provided by the school in order for distributions from a Coverdell ESA to qualify as nontaxable.
Expenses that must be incurred in connection with enrollment or attendance include tuition, fees, books, supplies, equipment, and academic tutoring.
Expenses that must be required or provided by the school include room and board, uniforms, transportation, and supplementary items and services.
The purchase of computer equipment, software, and Internet access is a qualified education expense if it is used by the beneficiary and his or her family during any of the beneficiary’s elementary or secondary school years. Software designed for sports, games, or hobbies does not qualify unless it is predominantly for educational purposes.
Higher Education
Some higher education expenses must be required by the institution, and some must be for a student who is enrolled at least half-time, in order for distributions from a Coverdell ESA to be nontaxable.
Expenses that must be required for enrollment or attendance include tuition, fees, books, supplies, and equipment.
Expenses for room and board must be for students who are enrolled at least half-time. This means carrying at least half the full-time academic work load for the student’s course of study, as determined by the educational institution.
The amount of room and board expense is limited to the greater of the allowance for room and board included in the cost of attendance (as determined for financial aid purposes, for example), or the actual amount the student is charged for residing in housing owned and operated by the educational institution.
A contribution to a Qualified Tuition Program (529 plans) is also considered a qualified education expense, provided it is for the designated beneficiary of the Coverdell ESA.
Eligible Educational Institution
For Coverdell ESA purposes, eligible educational institutions include elementary and secondary schools, as well as colleges, universities, vocational schools, and any other institution that is eligible to participate in a student aid program administered by the U.S. Department of Education.
Eligible elementary and secondary schools include any public, private or religious school, for grades kindergarten through 12th grade.