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Combine two types of education savings plans

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in Small Business Tax

Q. We want to set up a Section 529 plan for our new grandchildren (twins). Can we also set up a Coverdell account for the girls? P.C., Pound Ridge, N.Y.

A. Yes. You can contribute to a Section 529 plan and a Coverdell Education Savings Account (ESA) in the same year for the same beneficiaries. Furthermore, distributions from each plan will be exempt from tax if the funds are used for qualified education purposes. But the distributions can’t exceed the total amount of qualified expenses.

Tip: As opposed to Section 529 plans, which have much higher state-imposed limits, the annual contribution limit for a Coverdell ESA is $2,000 per beneficiary.

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