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Figuring the additional tax. Use Part II of Form 5329 to figure any additional tax. Report the amount on Schedule 2 (Form 1040), line 8. When Assets Must Be Distributed Any assets remaining in a Coverdell ESA must be distrib- uted when either one of the following two events occurs. 1. The designated beneficiary reaches age 30. In this case, the remaining assets must be distributed within 30 days after the beneficiary reaches age 30. How- ever, this rule doesn't apply if the beneficiary is a spe- cial needs beneficiary. 2. The designated beneficiary dies. In this case, the re- maining assets must generally be distributed within 30 days after the date of death. Exception for Transfer to Surviving Spouse or Family Member If a Coverdell ESA is transferred to a surviving spouse or other family member as the result of the death of the des- ignated beneficiary, the Coverdell ESA retains its status. (“Family member” was defined earlier under Rollovers.) This means the spouse or other family member can treat the Coverdell ESA as his or her own and doesn't need to withdraw the assets until he or she reaches age 30. This age limitation doesn't apply if the new beneficiary is a spe- cial needs beneficiary. There are no tax consequences as a result of the transfer. How To Figure the 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 nu- merator (top part) is the basis (contributions not previ- ously distributed) at the end of 2020 plus total contri- butions for 2021, and the denominator (bottom part) is the balance in the account at the end of 2021 plus the amount distributed during 2021. 2. Subtract the amount figured in (1) from the total amount distributed during 2021. The result is the amount of earnings included in the distribution. For an example, see steps 1 and 2 of the Example un- der Figuring the Taxable Portion of a Distribution, earlier. The beneficiary or other person receiving the distribu- tion must report this amount on Schedule 1 (Form 1040), line 8z, listing the type and amount of income. Coverdell ESA—Taxable Distributions and Basis Line G. Enter the total distributions received from all Coverdell ESAs during 2021. 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, 2020, is the total of: • All contributions to this Coverdell ESA before 2021, minus • The tax-free portion of any distributions from this Coverdell ESA before 2021. If your last distribution from this Coverdell ESA was before 2021, 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, 2020, 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 2021. Line 4. Enter the total distributions received from this Coverdell ESA in 2021. 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, 2021, plus any outstanding rollovers contributed to the account after 2020, but before the end of the 60-day rollover period. A statement should be sent to you by January 31, 2022, for this Coverdell ESA showing the value on December 31, 2021. 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 2021 (November 2 through December 31) that was rolled over after December 31, 2021, but within the 60-day rollover period. Worksheet 6-3 Instructions. Chapter 6 Coverdell Education Savings Account (ESA) Page 49