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Required Coverdell ESA Distributions and Taxable Earnings: Education Tax Benefits (2025 IRS Guide)

This guide covers “Required Coverdell ESA Distributions and Taxable Earnings” within education tax benefits. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 970 (2025), Tax Benefits for Education, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

The designated beneficiary of a Coverdell ESA can take a distribution at any time. Whether the distributions are tax free depends, in part, on whether the distributions are equal to or less than the amount of Adjusted qualified education expenses (AQEE) (defined later) the beneficiary has in the same tax year.

See Table 6-3 for highlights.

Required Coverdell ESA Distributions and Taxable Earnings

When a total distribution is made because the designated beneficiary either reached age 30 or died, the earnings that accumulated tax free in the account must be included in taxable income. You determine these earnings as shown in the following two steps.

  1. Multiply the amount distributed by a fraction. The numerator (top part) is the basis (contributions not previously distributed) at the end of 2024 plus total contributions for 2025, and the denominator (bottom part) is the balance in the account at the end of 2025 plus the amount distributed during 2025.

  2. Subtract the amount figured in (1) from the total amount distributed during 2025. The result is the amount of earnings included in the distribution.

For an example, see steps 1 and 2 of the Example under Figuring the Taxable Portion of a Distribution, earlier.

The beneficiary or other person receiving the distribution must report this amount on Schedule 1 (Form 1040), line 8z, listing the type and amount of income.

Worksheet 6-3 Instructions. Coverdell ESA—Taxable Distributions and Basis

Line G. Enter the total distributions received from all Coverdell ESAs during 2025. Don’t include amounts rolled over to another ESA within 60 days (only one rollover is allowed during any 12-month period). Also, don’t include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year for which the contributions were made.
Line 2. Your basis (amount already taxed) in this Coverdell ESA as of December 31, 2024, is the total of:
• All contributions to this Coverdell ESA before 2025, minus
• The tax-free portion of any distributions from this Coverdell ESA before 2025.
If your last distribution from this Coverdell ESA was before 2025, you must start with the basis in your account as of the end of the last year in which you took a distribution. For years before 2002, you can find that amount on the last line of the worksheet in the Instructions for Form 8606, Nondeductible IRAs, that you completed for that year. For years after 2001, you can find that amount by using the ending basis from the worksheet in Pub. 970 for that year. You can determine your basis in this Coverdell ESA as of December 31, 2024, by adding to the basis as of the end of that year any contributions made to that account after the year of the distribution and before 2025.
Line 4. Enter the total distributions received from this Coverdell ESA in 2025. Don’t include amounts rolled over to another Coverdell ESA within 60 days (only one rollover is allowed during any 12-month period).
Also, don’t include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year of the contributions.
Line 7. Enter the total value of this Coverdell ESA as of December 31, 2025, plus any outstanding rollovers contributed to the account after 2024, but before the end of the 60-day rollover period. A statement should be sent to you by February 2, 2026 (January 31 falls on a Saturday), for this Coverdell ESA showing the value on December 31, 2025.
A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. An outstanding rollover is any amount withdrawn within 60 days before the end of 2025 (November 2 through December 31) that was rolled over after December 31, 2025, but within the 60-day rollover period.

Coverdell education savings account (ESA)Figuring taxable portion of distributionWorksheet 6-3 Coverdell education savings account (ESA)Taxable distributionsWorksheet 6-3 to figure WorksheetsCoverdell ESATaxable distributions and basis (Worksheet 6-3)Worksheet 6-3. Coverdell ESA—Taxable Distributions and Basis

How to complete this worksheet.
•
•
•		 Complete Part I, lines A through H, on only one worksheet.
Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs.
Complete Part III, the Summary (line 16), on only one worksheet.
Caution. If you had a distribution from a qualified tuition program (QTP), see Coordination With Qualified Tuition Program (QTP) Distributions.
Part I. Qualified Education Expenses (Complete for total expenses.)
A. Enter your total qualified education expenses for 2025 A. _____
B. Enter those qualified education expenses paid for with tax-free educational assistance (for example, tax-free scholarships, veterans’ educational benefits, Pell grants, employer-provided educational assistance) B. _____
C. Enter those qualified higher education expenses deducted on Schedule C (Form 1040), Schedule F (Form 1040), or Schedule 1 (Form 1040), line 12 C. _____
D. Enter those qualified higher education expenses on which
an American opportunity or lifetime learning credit was based		 D. _____
E. Add lines B, C, and D E. _____
F. Subtract line E from line A. This is your AQEE for 2025 F. _____
G. Enter your total distributions from all Coverdell ESAs during 2025. Don’t include rollovers
or the return of excess contributions. See instructions		 G. _____
H. Divide line F by line G. Enter the result as a decimal (rounded to at least 3 places). If the
result is 1.000 or more, enter 1.000		 H. .
Part II. Taxable Distributions and Basis (Complete separately for each account.)
1. Enter the amount contributed to this Coverdell ESA for 2025, including contributions made for 2025 from January 1, 2026, through the due date (not including extensions) for filing your 2025 return. Don’t include rollovers or the return of excess contributions 1. _____
2. Enter your basis in this Coverdell ESA as of December 31, 2024. See instructions 2. _____
3. Add lines 1 and 2 3. _____
4. Enter the total distributions from this Coverdell ESA during 2025. Don’t include rollovers
or the return of excess contributions. See instructions		 4. _____
5. Multiply line 4 by line H. This is the amount of AQEE attributable to this Coverdell ESA 5. _____
6. Subtract line 5 from line 4 6. _____
7. Enter the total value of this Coverdell ESA as of December 31, 2025,
plus any outstanding rollovers. See instructions		 7. _____
8. Add lines 4 and 7 8. _____
9. Divide line 3 by line 8. Enter the result as a decimal (rounded to at least 3 places). If the result is 1.000 or more, enter 1.000 9. .
10. Multiply line 4 by line 9. This is the amount of basis allocated to your distributions, and is tax free 10. _____
Note. If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15.
11. Subtract line 10 from line 4 11. _____
12. Divide line 5 by line 4. Enter the result as a decimal (rounded to
at least 3 places). If the result is 1.000 or more, enter 1.000		 12. .
13. Multiply line 11 by line 12. This is the amount of qualified education expenses allocated to your distributions, and is tax free 13. _____
14. Subtract line 13 from line 11. This is the portion of the distributions from this Coverdell ESA in 2025 that you must include in income 14. _____
15. Subtract line 10 from line 3. This is your basis in this Coverdell ESA as of December 31, 2025 15. _____
Part III. Summary (Complete only once.)
16. Taxable amount. Add together all amounts on line 14 for all your Coverdell ESAs. Enter here
and include on Schedule 1 (Form 1040), line 8z, listing the type and amount of income		 16. _____

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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