What can be better than lowering your taxes? With a 529 plan, you have no federal tax obligation once your money's invested in your account. But the best part is that your earnings grow federal tax-deferred, and qualified withdrawals are tax-free. Some states have other tax benefits tied to the program as well.
Deduction. For example, in New York up to $10,000 is deductible from the state taxable income for married couples filing jointly; single taxpayers can deduct up to $5,000 annually. (This may be subject to recapture in certain circumstances, such as rollovers to another state's 529 plan or nonqualified withdrawals).