A BNY MELLON COMPANY

Form 5498 ESA FAQs

Q. I received all my 1099 tax forms in January/February. Why is Form 5498-ESA being mailed to me now?
A:
Form 5498-ESA is sent after April 15 (or, generally, the last day to file your 2013 income tax return without an extension) to ensure that all contributions made to your Coverdell ESA account in 2013, and 2014 which were designated for 2013, are accurately reported to you and to the IRS. Since federal tax law allows these designated contributions to be made during the period from January 1, 2013, though April 15, 2014, confirmation cannot be sent until after April 15. Federal tax rules require Dreyfus to furnish this form to you no later than April 30, 2014.

Q: What is the tax treatment of Coverdell ESA contributions and earnings?
A:
Coverdell ESA contributions are not tax deductible, but deposits grow tax-free until withdrawn. Withdrawals from Coverdell ESAs are generally tax-free to the extent that the amount of the withdrawal is not more than the beneficiary’s qualified education expenses.

Q: When can Coverdell ESA assets be withdrawn?
A:
Coverdell ESA distributions may be made at any time. As long as the distribution is applied to payment of the qualified education expenses of the designated beneficiary, it will generally not be considered taxable income for the beneficiary. Coverdell ESA assets generally must be used before the beneficiary reaches the age of 30 years. At that point, the funds will be distributed to, and generally considered taxable income of, the beneficiary, with the exception of special needs beneficiaries who are not subject to any age restrictions. To avoid this, the funds in a Coverdell ESA may be rolled over into a Coverdell ESA for another eligible family member before the primary beneficiary reaches age 30.

Q: What is the tax treatment for Coverdell ESA distributions not used for qualified education expenses?
A:
The earnings portion of a Coverdell ESA distribution that is not considered to be for qualified education expenses will be included in the gross income of the beneficiary and an additional 10 percent IRS tax penalty may apply.