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Earnings from a 529 plan are exempt from federal taxes, as are any withdrawals, as long as they go toward paying college costs. Some states waive state taxes for residents, other states allow deductions on contributions. 529 plans have generous maximum contribution limits - some as high as $250,000 per beneficiary. Most states hire experienced investment companies, such as TIAA-CREF to manage their 529 accounts. If funds are withdrawn for purposes other than education, the earnings are subject to a 10 percent penalty as well as federal income tax. States may assess their own penalties. Great for grandparents: 529 contributions are considered completed gifts and are excluded from your estate. Grandparents can also switch beneficiaries to other grandchildren. more about Arizona 529 Plan