Yes.  There are state and federal benefits.  Types of tax benefits include 1) Income; 2) Gift; 3) Generations-skipping transfer; and 4) Estate.  Earnings on contributions grow federally tax-deferred for all plans.  Beginning in 2002, withdrawals to pay for "qualified expenses" became federally tax-free and are not subject to federal income tax*.  All states defer earnings on 529 accounts from state income taxes and many state treat distributions paying for qualified expenses as tax-free for their home state sponsored plan as well as out-of-state plans.  Some states offer favorable tax treatment (such as a state income tax deduction or state tax credit) or other benefits to their residents only if the resident invests in their own state’s plan.

Contributions as much as $60,000 per beneficiary can be made in the first year of a five-year period without exceeding the annual federal gift tax exclusion. Contributions to a 529 plan are regarded as a completed gift and the value in the account is not includable in the account owner's estate, even though the owner is in control of the asset.

*This benefit was enacted by the Economic Growth and Tax Relief Reconciliation Act of 2001 [EGTRRA] and was set to expire after December 31, 2010.  The Pension Protection Act of 2006, signed into law in August 2006, made the tax-free withdrawals from a 529 plan for qualified education expenses a permanent provision of the Federal Tax Code. 

The federal income tax-free treatment for qualified distributions is the feature that is generally the benefit most credited with the interest and growth of 529 accounts.  529 accounts are complex and each taxpayer’s situation can be unique.  Please consult a professional tax advisor with details of your specific situation.