A 529 Plan & Coverdell ESA offers options to put away cash in an investment vehicle that can grow tax-deferred and ultimately be distributed tax-free as long as they are used for what is considered qualified education expenses.
Coverdell, though it has more contribution limits, is less restrictive in terms of qualified expenses, especially for K-12. [Whereas the 529 Plans can only be used for K-12 tuition.]The $2000 annual contributions allowed are subject to income limits, depending on filing status (Single $110,000 and MFJ $220,000).
529 Plans are broader in functionality and deductions are available on the state income tax return.
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Each state administers the plans, sets the deductible amounts and totals that can be contributed for a beneficiary.
Contributions for both plans are counted when considering gift tax implications. (2019 – $15,000 or split with spouse $30,000)
For 2019:
Massachusetts residents are eligible for deduction of $1000 ($2000 MFJ)
Aggregate contributions: $400,000
Rhode Island residents are eligible for deduction of $500 ($1000 MFJ)
Aggregate contributions: $395,000
Connecticut residents are eligible for deduction of $5,000 ($10,000 MFJ)
Aggregate contributions: $300,000
**Consult your tax advisor for specific questions.**