The Coverdell Education Savings Account and IRS Filing Requirements
The deadline for filing the Form 5498 Series is coming up at the end of the month. To help filers prepare, we are highlighting another form in this series, the Form 5498-ESA.
This form is used to report contributions made to the Coverdell Education Savings Account, whether you have one of these accounts or are the trustee of one of these accounts, here are the highlights of the form that you should know.
What is a Coverdell Education Savings Account?
The Coverdell Education Savings Account (ESA) is a type of savings account that allows parents and guardians to save money for their children’s education. The account participant can make annual contributions that can later be used to pay qualified education expenses.
These accounts are only available to individuals under a certain income level. There is also a cap for annual contributions, this is $2,000 per year.
With the Coverdell Education Savings Account, the funds are tax-free when distributed. However, the full amount must be withdrawn from the account before the beneficiary turns 30, other taxes and penalties will incur.
It is also important to note that the funds from this account can be used towards primary, secondary, or higher education costs.
What form is used to report these contributions?
Form 5498-ESA is used to report contributions to the Coverdell Education Savings Account. The IRS requires the issuer, or trustee of this account to report the contributions on Form 5498-ESA each year. In addition to submitting this form to the IRS, trustees must also print and mail copies to the account participants.
The deadline to file Form 5498-ESA with the IRS is usually May 31, 2021. However, the IRS extended the deadline for tax year 2020, due to the ongoing COVID-19 pandemic. The deadline to file Form 5498-ESA for tax year 2020 is June 30, 2021.
How to file Form 5498-ESA?
The Form 5498-ESA is a pretty simple form as long as you have the right information on hand. The following information is required on Form 5498-ESA:
- Trustee Information: Name, address, TIN
- Beneficiary Information: Name, address, TIN, and account number
- Box 1- Coverdell ESA contributions
- Box 2- Rollover contributions
Different Filing Methods
When it comes to filing Form 5498-ESA, trustees have two options. The IRS will accept either paper forms by mail, or e-filing. As with other forms, the IRS prefers that you file electronically.
This allows them to process your form more quickly and efficiently, which means you will receive an update on your filing status much sooner.
TaxBandits supports the e-filing Form 5498-ESA, as well as the Form 5498-SA and 5498. With TaxBandits, e-filing is simple and convenient. In addition to e-filing with the IRS, you can take care of your participant copies with print and mailing and online access options.
