529 Plans combine the best features of prepaid tuition programs, custodial accounts, and other tax deferred savings programs. Contributions for each beneficiary can be significant depending upon which state plan you join. What's even better is that you can contribute $60,000 ($120,000 for married couples) in one year without having to pay gift taxes, as long as no other gifts are made by you to those children over the next five years. These assets will also be removed from the donor's estate, thereby reducing potential estate taxes.
Control and Growth
Even though you are removing these assets from your estate, you still get to keep control over the funds. There is also no age limit on the beneficiaries, and no time limit in which the funds have to be withdrawn. They can continue to grow tax-deferred until they are needed. If necessary, you can also change the beneficiary of the account as often as you would like. As long as the proceeds are used to pay for qualified higher education expenses, all earnings will be free from federal income tax.