ESA Rollover Question
Hello,
I have a client who has an ESA for their child and they looking to take the ESA funds and move them to a 529 at another firm. I was under the impression that this should be treated as a distribution out of the ESA and the funds can be sent to the client who then can use the finds to make a contribution to the child’s 529 plan if they are eligible.
My client is under the impression based on some third party resource that this transaction should be coded as a “rollover” and not coded as a “ESA distribution”. Do you have any feedback on this type of transaction? I thought that since the ESA is under the child’s TIN and they ESA would be under the Parent’s TIN then the movement out of the ESA would have to be coded as a distribution.
Thank you.
Permalink Submitted by William Tuttle on Tue, 2022-05-17 13:53
However, an ESA distribution followed by a 529 contribution completed during the same tax year. Is a quaulified ESA distribution and 529 contribution.
While this is not reportable to the IRS, the principal and earnings must be provided to the 529 plan.
This amount must be separately tracked, because ESA distribution requirements remain attached to these assets.
Alternatively, a trustee -> trustee transfer can be done from the ESA custodian to the 529 plan.
There is a lot of misinformation about this on the internet. While a 60-day indirect rollover can be done between ESAs, it can not be used to move to a 529.