Consequences for failure to remove excess Coverdell ESA contributions will depend on the steps taken to correct excess contributions in a timely manner. If no action is taken to correct the allocated excess contributions, the IRS will charge the designated beneficiary a 6% penalty tax on the excess amount.
This penalty is charged at 6% per year for each year the excess amounts remain in the ESA . Custodians must manage the excess contribution removal of the ESA before the first day of the sixth month following the taxable year.