A Coverdell education savings account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, the Coverdell education savings account shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations).
For purposes of this section-
The term "Coverdell education savings account" means a trust created or organized in the United States exclusively for the purpose of paying the qualified education expenses of an individual who is the designated beneficiary of the trust (and designated as a Coverdell education savings account at the time created or organized), but only if the written governing instrument creating the trust meets the following requirements:
The age limitations in subparagraphs (A)(ii) and (E), and paragraphs (5) and (6) of subsection (d), shall not apply to any designated beneficiary with special needs (as determined under regulations prescribed by the Secretary).
The term "qualified education expenses" means-
Such term shall include any contribution to a qualified tuition program (as defined in section 529(b)) on behalf of the designated beneficiary (as defined in section 529(e)(1)); but there shall be no increase in the investment in the contract for purposes of applying section 72 by reason of any portion of such contribution which is not includible in gross income by reason of subsection (d)(2).
The term "qualified elementary and secondary education expenses" means-
Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature.
The term "school" means any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law.
The term "computer technology or equipment" means computer software (as defined by section 197(e)(3)(B)), computer or peripheral equipment (as defined by section 168(i)(2)(B)), and fiber optic cable related to computer use.
An individual shall be deemed to have made a contribution to an education individual retirement account on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).
In the case of a contributor who is an individual, the maximum amount the contributor could otherwise make to an account under this section shall be reduced by an amount which bears the same ratio to such maximum amount as-
For purposes of paragraph (1), the term "modified adjusted gross income" means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.
Any distribution shall be includible in the gross income of the distributee in the manner as provided in section 72.
No amount shall be includible in gross income under paragraph (1) if the qualified education expenses of the designated beneficiary during the taxable year are not less than the aggregate distributions during the taxable year.
If such aggregate distributions exceed such expenses during the taxable year, the amount otherwise includible in gross income under paragraph (1) shall be reduced by the amount which bears the same ratio to the amount which would be includible in gross income under paragraph (1) (without regard to this subparagraph) as the qualified education expenses bear to such aggregate distributions.
For purposes of subparagraph (A)-
The total amount of qualified education expenses with respect to an individual for the taxable year shall be reduced-
If, with respect to an individual for any taxable year-
the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under subparagraph (A) and section 529(c)(3)(B).
No deduction, credit, or exclusion shall be allowed to the taxpayer under any other section of this chapter for any qualified education expenses to the extent taken into account in determining the amount of the exclusion under this paragraph.
Rules similar to the rules of paragraphs (2), (4), and (5) of section 529(c) shall apply for purposes of this section.
The tax imposed by this chapter for any taxable year on any taxpayer who receives a payment or distribution from a Coverdell education savings account which is includible in gross income shall be increased by 10 percent of the amount which is so includible.
Subparagraph (A) shall not apply if the payment or distribution is-
Subparagraph (A) shall not apply to the distribution of any contribution made during a taxable year on behalf of the designated beneficiary if-
Any net income described in clause (ii) shall be included in gross income for the taxable year in which such excess contribution was made.
Paragraph (1) shall not apply to any amount paid or distributed from a Coverdell education savings account to the extent that the amount received is paid, not later than the 60th day after the date of such payment or distribution, into another Coverdell education savings account for the benefit of the same beneficiary or a member of the family (within the meaning of section 529(e)(2)) of such beneficiary who has not attained age 30 as of such date. The preceding sentence shall not apply to any payment or distribution if it applied to any prior payment or distribution during the 12-month period ending on the date of the payment or distribution.
Any change in the beneficiary of a Coverdell education savings account shall not be treated as a distribution for purposes of paragraph (1) if the new beneficiary is a member of the family (as so defined) of the old beneficiary and has not attained age 30 as of the date of such change.
Rules similar to the rules of paragraphs (7) and (8) of section 220(f) shall apply. In applying the preceding sentence, members of the family (as so defined) of the designated beneficiary shall be treated in the same manner as the spouse under such paragraph (8).
In any case in which a distribution is required under subsection (b)(1)(E), any balance to the credit of a designated beneficiary as of the close of the 30-day period referred to in such subsection for making such distribution shall be deemed distributed at the close of such period.
For purposes of this section, the term "rollover contribution" includes a contribution to a Coverdell education savings account made before the end of the 1-year period beginning on the date on which the contributor receives an amount under section 1477 of title 10, United States Code, or section 1967 of title 38 of such Code, with respect to a person, to the extent that such contribution does not exceed-
The last sentence of paragraph (5) shall not apply with respect to amounts treated as a rollover by subparagraph (A).
For purposes of applying section 72 in the case of a distribution which is includible in gross income under paragraph (1), the amount treated as a rollover by reason of subparagraph (A) shall be treated as investment in the contract.
Rules similar to the rules of paragraphs (2) and (4) of section 408(e) shall apply to any Coverdell education savings account.
This section shall be applied without regard to any community property laws.
For purposes of this section, a custodial account shall be treated as a trust if the assets of such account are held by a bank (as defined in section 408(n)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will administer the account will be consistent with the requirements of this section, and if the custodial account would, except for the fact that it is not a trust, constitute an account described in subsection (b)(1). For purposes of this title, in the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account shall be treated as the trustee thereof.
The trustee of a Coverdell education savings account shall make such reports regarding such account to the Secretary and to the beneficiary of the account with respect to contributions, distributions, and such other matters as the Secretary may require. The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required.
26 U.S.C. § 530
EDITORIAL NOTES
REFERENCES IN TEXTThe date of the enactment of this section, referred to in subsec. (d)(4)(B)(iv), is the date of enactment of Pub. L. 105-34, which enacted this section and was approved Aug. 5, 1997.
AMENDMENTS2018-Subsec. (b)(3)(A)(iii). Pub. L. 115-141, §401(b) (23)(A), struck out "(as defined in section 170(e)(6)(F)(i))" before "or Internet".Subsec. (b)(3)(C). Pub. L. 115-141, §401(b) (23)(B), added subpar. (C).Subsec. (d)(2)(C). Pub. L. 115-141, §101(l) (16), substituted "American Opportunity" for "Hope" in heading.Subsec. (d)(9)(B). Pub. L. 115-141, §401(a) (131), substituted "by" for "by the". 2008-Subsec. (d)(9). Pub. L. 110-245 added par. (9).2005-Subsec. (b)(2)(A)(ii). Pub. L. 109-135, §412 (ff)(2), substituted "paragraph (3)" for "paragraph (4)".Subsec. (b)(3) to (5). Pub. L. 109-135, §412 (ff)(1), redesignated pars. (4) and (5) as (3) and (4), respectively, and struck out former par. (3) which read as follows: "The term 'eligible educational institution' has the meaning given such term by section 529(e)(5)."2004-Subsec. (d)(2)(C)(i). Pub. L. 108-311, §404(a), struck out "higher" after "qualified" in introductory provisions.Subsec. (d)(4)(B)(iii). Pub. L. 108-311, §406(b), substituted "designated beneficiary" for "account holder".2003-Subsec. (d)(4)(B)(iv), (v). Pub. L. 108-121 added cl. (iv) and redesignated former cl. (iv) as (v). 2002-Subsec. (d)(4)(B)(iv). Pub. L. 107-147 substituted "by application of paragraph (2)(C)(i)(II)" for "because the taxpayer elected under paragraph (2)(C) to waive the application of paragraph (2)". 2001- Pub. L. 107-22, §1(a)(5), amended section catchline generally, substituting "Coverdell education savings" for "Education individual retirement".Subsec. (a). Pub. L. 107-22, §1(a)(2), substituted "A Coverdell education savings account" for "An education individual retirement account" and "the Coverdell education savings account" for "the education individual retirement account". Subsec. (b)(1). Pub. L. 107-22, §1(a)(1), (3), in heading, substituted "Coverdell education savings account" for "Education individual retirement account" and, in introductory provisions, substituted " 'Coverdell education savings account' " for " 'education individual retirement account' " and "designated as a Coverdell education savings account" for "designated as an education individual retirement account". Pub. L. 107-16, §401(d), inserted concluding provisions. Pub. L. 107-16, §401(c)(3)(A), struck out "higher" before "education expenses" in introductory provisions.Subsec. (b)(1)(A)(iii). Pub. L. 107-16, §401(a)(1), substituted "$2,000" for "$500". Subsec. (b)(2). Pub. L. 107-16, §401(c)(1), amended heading and text of par. (2) generally, substituting present provisions for provisions which defined "qualified higher education expenses" as having the meaning given such term by section 529(e)(3), reduced as provided in section 25A(g)(2), and including amounts paid or incurred to purchase tuition credits or certificates, or to make contributions to an account, under a qualified State tuition program for the benefit of the beneficiary of the account.Subsec. (b)(2)(B). Pub. L. 107-16, §402(a)(4)(A), (C), in heading, substituted "Qualified tuition" for "Qualified State tuition" and in text, substituted "qualified tuition" for "qualified State tuition".Subsec. (b)(4). Pub. L. 107-16, §401(c)(2), added par. (4). Subsec. (b)(5). Pub. L. 107-16, §401(f)(1), added par. (5).Subsec. (c)(1). Pub. L. 107-16, §401(e), substituted "In the case of a contributor who is an individual, the maximum amount the contributor" for "The maximum amount which a contributor" in introductory provisions.Subsec. (c)(1)(A)(ii). Pub. L. 107-16, §401(b)(1), substituted "$190,000" for "$150,000". Subsec. (c)(1)(B). Pub. L. 107-16, §401(b)(2), substituted "$30,000" for "$10,000".Subsec. (d)(2). Pub. L. 107-16, §401(c)(3)(B), struck out "higher" before "education" in heading.Subsec. (d)(2)(A), (B). Pub. L. 107-16, §401(c)(3)(A), struck out "higher" before "education". Subsec. (d)(2)(C). Pub. L. 107-16, §401(g)(1), amended heading and text of subpar. (C) generally. Prior to amendment, text read as follows: "A taxpayer may elect to waive the application of this paragraph for any taxable year."Subsec. (d)(2)(D). Pub. L. 107-16, §401(g)(2)(C), in heading, substituted "deduction, credit, or exclusion" for "credit or deduction" and in text, substituted ", credit, or exclusion" for "or credit".Subsec. (d)(4)(A). Pub. L. 107-22, §1(a)(1), substituted "a Coverdell education savings account" for "an education individual retirement account".Subsec. (d)(4)(C). Pub. L. 107-16, §401(f)(2)(B), substituted "certain date" for "due date of return" in heading.Subsec. (d)(4)(C)(i). Pub. L. 107-16, §401(f)(2)(A), added cl. (i) and struck out former cl. (i) which read as follows: "such distribution is made on or before the day prescribed by law (including extensions of time) for filing the beneficiary's return of tax for the taxable year or, if the beneficiary is not required to file such a return, the 15th day of the 4th month of the taxable year following the taxable year; and".Subsec. (d)(5). Pub. L. 107-22, §1(a)(1), (4), substituted "distributed from a Coverdell education savings account" for "distributed from an education individual retirement account" and "another Coverdell education savings account" for "another education individual retirement account".Subsec. (d)(6). Pub. L. 107-22, §1(a)(1), substituted "a Coverdell education savings account" for "an education individual retirement account".Subsec. (e). Pub. L. 107-22, §1(a)(4), substituted "Coverdell education savings account" for "education individual retirement account".Subsec. (h). Pub. L. 107-22, §1(a)(1), substituted "a Coverdell education savings account" for "an education individual retirement account". 2000-Subsec. (d)(4)(B)(iii). Pub. L. 106-554 substituted a comma for a semicolon before "or" at end. 1998-Subsec. (b)(1). Pub. L. 105-206, §6004(d)(1), inserted "an individual who is" before "the designated beneficiary" in introductory provisions.Subsec. (b)(1)(E). Pub. L. 105-206, §6004(d)(2)(A), amended subpar. (E) generally. Prior to amendment, subpar. (E) read as follows: "Upon the death of the designated beneficiary, any balance to the credit of the beneficiary shall be distributed within 30 days after the date of death to the estate of such beneficiary."Subsec. (d)(1). Pub. L. 105-206, §6004(d)(3)(A), substituted "section 72" for "section 72(b)".Subsec. (d)(2)(D). Pub. L. 105-206, §6004(d)(5), added subpar. (D).Subsec. (d)(4)(B)(iv). Pub. L. 105-206, §6004(d)(6), added cl. (iv).Subsec. (d)(4)(C). Pub. L. 105-206, §6004(d)(7), substituted "Contributions" for "Excess contributions" in heading and amended text of introductory provisions and cl. (i) generally. Prior to amendment, text read as follows: "Subparagraph (A) shall not apply to the distribution of any contribution made during a taxable year on behalf of a designated beneficiary to the extent that such contribution exceeds $500 if-"(i) such distribution is received on or before the day prescribed by law (including extensions of time) for filing such contributor's return for such taxable year, and". Subsec. (d)(5). Pub. L. 105-206, §6004(d)(8)(A), added first sentence and struck out former first sentence which read as follows: "Paragraph (1) shall not apply to any amount paid or distributed from an education individual retirement account to the extent that the amount received is paid into another education individual retirement account for the benefit of the same beneficiary or a member of the family (within the meaning of section 529(e)(2)) of such beneficiary not later than the 60th day after the date of such payment or distribution."Subsec. (d)(6). Pub. L. 105-206, §6004(d)(8)(B), inserted before period at end "and has not attained age 30 as of the date of such change".Subsec. (d)(7). Pub. L. 105-206, §6004(d)(2)(B), inserted at end "In applying the preceding sentence, members of the family (as so defined) of the designated beneficiary shall be treated in the same manner as the spouse under such paragraph (8)."Subsec. (d)(8). Pub. L. 105-206, §6004(d)(2)(C), added par. (8).
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 2018 AMENDMENT Amendment by section 101(l)(16) of Pub. L. 115-141 effective as if included in the provision of the Protecting Americans from Tax Hikes Act of 2015, div. Q of Pub. L. 114-113, to which such amendment relates, see section 101(s) of Pub. L. 115-141, set out as a note under section 24 of this title.
EFFECTIVE DATE OF 2008 AMENDMENT Amendment by Pub. L. 110-245 applicable with respect to deaths from injuries occurring on or after June 17, 2008, with provision for application of amendment to deaths from injuries occurring on or after Oct. 7, 2001, and before June 17, 2008, see section 109(d)(1), (2) of Pub. L. 110-245, set out as a note under section 408A of this title.
EFFECTIVE DATE OF 2004 AMENDMENT Amendment by section 404(a) of Pub. L. 108-311 effective as if included in the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment relates, see section 404(f) of Pub. L. 108-311, set out as a note under section 45A of this title.Amendment by section 406(b) of Pub. L. 108-311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to which such amendment relates, see section 406(h) of Pub. L. 108-311, set out as a note under section 55 of this title.
EFFECTIVE DATE OF 2003 AMENDMENT Pub. L. 108-121, §107(b), Nov. 11, 2003, 117 Stat. 1339, provided that: "The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2002."
EFFECTIVE DATE OF 2002 AMENDMENT Amendment by Pub. L. 107-147 effective as if included in the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16, to which such amendment relates, see section 411(x) of Pub. L. 107-147, set out as a note under section 25B of this title.
EFFECTIVE DATE OF 2001 AMENDMENT Amendment by Pub. L. 107-22 effective July 26, 2001, see section 1(c) of Pub. L. 107-22, set out as a note under section 26 of this title. Amendment by section 401(a)(1), (b)-(g)(1), (2)(C) of Pub. L. 107-16 applicable to taxable years beginning after Dec. 31, 2001, see section 401(h) of Pub. L. 107-16, set out as a note under section 25A of this title. Amendment by section 402(a)(4)(A), (C) of Pub. L. 107-16 applicable to taxable years beginning after Dec. 31, 2001, see section 402(h) of Pub. L. 107-16, set out as a note under section 72 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT Amendment by Pub. L. 105-206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to which such amendment relates, see section 6024 of Pub. L. 105-206, set out as a note under section 1 of this title.
EFFECTIVE DATESection applicable to taxable years beginning after Dec. 31, 1997, see section 213(f) of Pub. L. 105-34, set out as an Effective Date of 1997 Amendment note under section 26 of this title.
SAVINGS PROVISIONFor provisions that nothing in amendment by section 401(b)(23) of Pub. L. 115-141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115-141, set out as a note under section 23 of this title.
- Secretary
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- State
- The term "State" shall be construed to include the District of Columbia, where such construction is necessary to carry out provisions of this title.
- individual retirement plan
- The term "individual retirement plan" means-(A) an individual retirement account described in section 408(a), and(B) an individual retirement annuity described in section 408(b).
- joint return
- The term "joint return" means a single return made jointly under section 6013 by a husband and wife.
- person
- The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.
- student
- The term "student" means any individual-(i) who is temporarily present in the United States-(I) under subparagraph (F) or (M) of section 101(15) of the Immigration and Nationality Act, or(II) as a student under subparagraph (J) or (Q) of such section 101(15), and(ii) who substantially complies with the requirements for being so present.
- taxable year
- The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. "Taxable year" means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.
- taxpayer
- The term "taxpayer" means any person subject to any internal revenue tax.