You asked:

“Quincy: RE: A Coverdell ESA, if an individual has contributeed to a Coverdel on behalf of his child for the last 3 years, $2,000 each yerar for a total of $6,000, can he withdraw the $6000 in contributions, leaving the accumlated gains? If so are there any tax related consequences?

2nd question: can my ROTH and HSA partner to buy or option a note and share in the profits. Or can say the ROTH buy option and sell to the other IRA to derive a profit.”

My answer:

Regarding the Coverdell ESA distribution, go to IRS Publication 970, entitled “Tax Benefits for Education,” which you can download for free from www.irs.gov. The description of how to calculate the taxability of distributions is on page 53. Essentially, the distribution is done on a pro rata basis. In other words, normally each distribution will contain part of your after-tax contributions and part of any gains made in the account. Unlike the Roth IRA, your basis is not distributed first. In addition to taxes, a 10% penalty would be owed for any portion of the distribution which is taxable because it exceeded the Adjusted Qualified Education Expenses (AQEE). To the extent there was sufficient AQEE, there is no tax and no penalty on the distribution.

As to your second question, partnering your Roth IRA and your HSA is the same as partnering two IRAs – they are disqualified persons to each other, so you cannot invest in any way where one benefits disproportionately. Arguably they could partner with each other on equal terms, although you will want to be cautious in how you handle the investment if you go that route. The most conservative answer is to not partner disqualified persons together at all. However, many people choose to partner accounts together, even if they are disqualified persons too each other.

I hope that helps. Thank you for the question, and have a great day!