What income tax benefits are available from a 529 plan?
Federal taxes: Earnings grow tax deferred and are free from federal income tax when used for qualified higher education expenses.1 Qualified higher education expenses include tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance; certain room and board costs during any academic period the beneficiary is enrolled at least half-time; and certain expenses for a special-needs student.

State taxes:
Many states offer deductions or credits for the contributions that you (as account owner) make to their state plan (if you are a taxpayer in that state). When you are looking for a 529 plan, check out your own state's plan to see if it offers such a tax benefit.

What are the gift- and estate-tax benefits of a plan?

For 2013, individuals can invest up to $14,000 ($28,000 if married filing jointly) per beneficiary without assuming any gift-tax consequences. For accelerating gifting, you can also contribute up to $70,000 per child in a single year ($140,000 if married filing jointly) and take advantage of five years' worth of tax-free gifts made in a single year.2 Contributions are considered completed gifts and are removed from your estate, but you, as the account owner, retain control. For more information, consult your tax advisor or estate-planning attorney.

1 Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal tax penalty, as well as state and local income taxes. The availability of tax and other benefits may be contingent on meeting other requirements.
2 In the event the donor does not survive the five-year period, a pro-rated amount will revert to the donor's taxable estate.