529 & Education Savings Plans For Dummies by Margaret A. Munro

Author:Margaret A. Munro [Munro, Margaret Atkins]
Language: eng
Format: epub
ISBN: 9781394160341
Publisher: Wiley
Published: 2023-03-21T00:00:00+00:00

Spending down your student’s Coverdell account early

First, you may choose to use your student’s Coverdell account before they reach college and start applying for financial aid. Remember, you may use Coverdell distributions to pay for all qualifying educational expenses for primary and secondary school and post-secondary school. The rules concerning what qualifies are far laxer for K–12 expenses than for college ones.

Even if your child doesn’t attend private school, many expenses that qualify during their primary and secondary years won’t qualify for post-secondary education (see Chapter 8). If you manage to make the final distribution from your Coverdell plan before your child applies for financial aid — perhaps by buying a new computer you know they need for school or by paying for extra tutoring — the fact that a Coverdell account once existed for your child won’t make one whit of difference in their aid award.

Remember that FAFSA is based on your income tax returns from the prior-prior year, but the assets you report will be the current value as of the date you file the FAFSA.

And since no good deed ever goes unpunished, beware of making a non-qualifying distribution in the prior-prior year that will be included on the FAFSA. That distribution will show up on the student’s Form 1040 for the year being examined and will count as income in that year.

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