Question

Ways in which a Section 529 Plan differs from a Coverdell ESA include:

a- tax-free distributions when the funds are used for qualifying educational expenses: True/ False
b- higher contribution limits: True/ False
c- no earnings limitations: True/ False
d- contributions may be made by someone other than a parent or legal guardian: True/ False

Answer 1

A Section 529 Plan differs from a Coverdell ESA in having higher contribution limits, no earnings limitations based on the income of the contributor and allowing contributions from anyone, not just parents or legal guardians. Both plans offer tax-free distributions when used for qualifying educational expenses.

Step-by-step explanation:

The subject of the question deals with the differences between a Section 529 Plan and a Coverdell Education Savings Account (ESA), particularly regarding their characteristics related to contributions and tax benefits for educational expenses. Here is the clarification for each point based on the details of these savings plans:

• Tax-free distributions when the funds are used for qualifying educational expenses are available in both Section 529 plans and Coverdell ESAs - True.
• A Section 529 plan offers higher contribution limits compared to a Coverdell ESA - True.
• Section 529 plans have no earnings limitations based on the income of the contributor, unlike Coverdell ESAs, which do have income restrictions - True.
• With both Section 529 plans and Coverdell ESAs, contributions may be made by someone other than a parent or legal guardian, such as other family members or friends - True.