“A Coverdell ESA is meant to be used for qualified education expenses. Failing to stick to the IRS guidelines for distributions could trigger a tax penalty. Here are some scenarios that could result in a tax bite.
Withdrawals for Expenses Other Than Education
The IRS is very clear about what an ESA can be used for. Qualified education expenses for higher education include:
tuition and fees
books, supplies and equipment
expenses for special-needs services required by a special-needs beneficiary
room and board for students who are enrolled at least half-time
computer equipment, software, internet access or related services if used primarily by the beneficiary while they’re enrolled”