HOPE Scholarship and Lifetime Learning Credit

Coordination with the HOPE Scholarship and Lifetime Learning Credit

A taxpayer may be able to claim a Hope Scholarship or Lifetime Learning Credit for a taxable year and still exclude from gross income the amounts distributed (both the contributions and the earnings portion) from a Coverdell ESA on behalf of the same student as long as the distribution is not used for the same educational expenses for which a credit was claimed.

Distributions for any other purpose would be taxable on a pro-rata basis.

Earnings included in withdrawals that exceed the child's qualified education expenses are subject to ordinary income taxes and the 10% premature distribution penalty tax.

Penalty free distributions from a Coverdell Education Savings Account are allowed for distributions due to:

• The death of the beneficiary.

   

• The disability of the beneficiary.

   

• The extent of any scholarship, allowance or certain similar programs.

Required Distributions

All funds must be distributed no later than

• 30 days after the 30th birthday or, if earlier,

   

• the death of the child.

Any remaining balance in the Coverdell Education Savings Account must be distributed or transferred to an eligible beneficiary under the age of 30 (an exception applies to special needs students).