<p>We established Coverdell accounts for both kiddos and now that D is expected to graduate Spring 2012, we are looking to withdraw the funds we have saved for both of them. We have already rolled his account into hers (he graduated 2010) and are just trying to be SURE we do everything right.
The annual tuition is WAY above the amount we have in the account. Can we just withdraw the amount & close the account & keep paying her tuition & expenses as we have been or is there some majic way that you're supposed to do things to avoid expensive penalties.
Thanks for any help--we have never withdrawn any funds--only deposited and watched the funds shrink. :(</p>
<p>HImom - I suppose if you were REALLY concerned about the appearance of impropriety, you could request a check and endorse it over to the college your D is attending (for tuition of course). We were more casual … we got the check, deposited it in our bank account, then paid tuition from the bank account. Coverdell accounts were small. (How much could one really accumulate with a $500/year contribution limit?)</p>
<p>Actually, we have accummulated quite a bit for the kids combined, though of course kiddo’s tuition is VERY pricey. We would prefer to just deposit it into our account after closing the Coverdell & continue to use our charge card for the tuition, since we earn 2% on all charges. We use our account to pay off the charge card bills. </p>
<p>From what I’ve read so far, the key is to be sure the total qualified expenses are lower than the amount you withdraw in any year, which would be the case for D – just WISH there enough money in the account for that to even be an issue.</p>
<p>One more (minor) thing–the 1098T form we got for D is wrong–it says we paid much less of funds we paid for tuition is for qualified tuition (is there some sort of cap on how that is calculated). It doesn’t matter but it just seems odd that it should be less than 3/4s of what we actually paid and were charged in tuition, with the amounts reflected below. Thanks to anyone who can make sense of these forms.</p>
<p>Just double-checking if there are any accounting folks out there that can confirm that it’s OK to just deposit funds from the Coverdell into our regular checking account & continue to pay our tuition on the payment plan with our credit card? Haven’t seen anything that disallows this, but am just trying to be sure we don’t run afowl of something we’re not aware of. FWIW, the amount in the Coverdell is slightly over one semester’s tuition, without books or room & board. Thanks!</p>
<p>Not an accountant but yes you can do that. The money doesn’t have to be sent directly to the school. You had it backward in your previous post though, qualified expenses have to be greater or equal to the amount you withdraw within the same tax year. You should get a form 1099-Q from the financial institution showing the withdrawal amount for the previous tax year and you would need to have documentation showing qualified expenses that equal or exceed that amount that were paid in the same tax year.</p>
<p>Your question about the 1098T isn’t at all clear.</p>
<p>“One more (minor) thing–the 1098T form we got for D is wrong …”</p>
<p>HImom - This phenomenon is being discussed in a parallel thread:</p>
<p><a href=“http://talk.collegeconfidential.com/parents-forum/1082882-tax-question-college-accounting-doesnt-reflect-actual-outlay.html[/url]”>http://talk.collegeconfidential.com/parents-forum/1082882-tax-question-college-accounting-doesnt-reflect-actual-outlay.html</a></p>
<p>Sorry for any confusion. We had our accounts with Dean Witter, now Smith Barney/Morgan Stanley (from the mergers) and would just like to close them out & put the funds into our joint savings and continue to pay off the tuition expenses via the payment plan through our credit card.</p>
<p>I guess we’ll have to be careful to document the school expenses vs. the distribution so we don’t have hassles about any potential income tax claims by IRS & attach all to our return via the accountant. The tuition alone is MUCH more than the accounts have ever held. We have losses in the Coverdell, never got any of the hoped for gains. 
Oh well, it is a source of savings we can apply. Have seen info about possibly itemizing the losses, if they are high enough.</p>
<p>Yes, I did look at that thread about the 1098T. Don’t really understand why this contractor that the U hired can’t figure it out correctly as to the appropriate # to put in box 2–they had most of the correct info set out below the form. I guess it baffles many.</p>
<p>Any more thoughts/experiences on how to correctly do the distribution? I really don’t want to be auditted or hassled by the IRS.</p>