1. Distributions are not taxed, but must be used for education costs such as tuition, books and so on.
2. The school can be public, private or religious and the money can be used as early as elementary school, to wit, this particular platform is not just for college.
3. You can use this strategy in addition to the hope and lifetime learning strategies, i.e., they don’t cancel each other out.
4. If distributions do not go to education expenses or are more than said costs, the beneficiary is taxed like income tax and a ten percent penalty is added.
5. If the beneficiary completes school or does not go, the account may be rolled over to another family member.
All and all, the Coverdell plan is definitely a long-term strategy. Start one now for your young child, however, and you will be happy you did when the tuition bills start arriving.