Chris Cowles wrote:

- quote -

Your interpretation of the rules are correct. A computer and
its software used for educational purposes by the CESA
beneficiary would meet the test.

I would like to raise a subsidiary question for the other
participants of this newsgroup. Based on the post it appears
as though the computer was already purchased and the father
now wants to reimburse himself by taking the funds from the
CESA. In other words, having already exercised his parental
obligations of providing support to his child (education
being support) he desires to take the funds from the
beneficiary for his own benefit. Assume for this purpose
that the account was not incurring a loss such that any
distribution would include a taxable amount that would have
to be declared by the beneficiary.

Is the withdrawal still a qualified expense?

--
Alan
http://taxtopics.net

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My kids have Coverdells with balances less than $1000 each.
My having opened them was an error in judgement. They are in
Wachovia bank getting negative earnings. Because of the low
balance, earnings are exceeded by expenses. Unrelated to the
returns on the accounts, I've revised my college funding
plan to be primarily based on use of a second mortgage, paid
off by selling the house when my second child completes
college. (I'm only guaranteeing my kids an education at an
in-state public university. Anything beyond that they have
to come up with themselves, e.g., scholarship, grant, loan,
etc.)

I just found out that Coverdells can be used for qualified
elementary and secondary educational expenses. My kids are
in 3rd and 6th grades in public schools. An excerpt from the
IRS web posting detailing Coverdell ESAs is below.

I bought a new computer for the kids in calendar year 2005.
Because it is used predominantly by my children and largely
for educational purposes (Encarta for homework help,
JumpStart educational games), I'm interpreting the
information below to mean that I can withdraw from the
Coverdells to pay for it. Am I correct and safe in this
interpretation?

http://www.irs.gov/publications/p970/ch07.html#d0e7362
"3. The purchase of computer technology, equipment, or
Internet access and related services is a qualified
elementary and secondary education expense if it is to be
used by the beneficiary and the beneficiary's family during
any of the years the beneficiary is in elementary or
secondary school. (This does not include expenses for
computer software designed for sports, games, or hobbies
unless the software is predominantly educational in nature.)
"

Thanks in advance.

Chris Cowles
Gainesville, FL

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