Americans fling more than $30 million a day at 529 college savings plans, and no wonder—the plans provide some sweet tax savings, a variety of investment choices and the satisfaction that you're doing something for the kids.
These plans, sponsored by almost every state and the District of Columbia, allow savers to accumulate money their children use for college. Contributions don't get any federal tax breaks, though some states offer tax incentives to participants. When the money is withdrawn to pay for qualified college expenses, it is not taxed - so all the money earned within the 529 over the years is tax-free income.
But wait, there's more. The 529 is a creation of federal tax law and so joins others—like the home mortgage deduction and the write off for health savings accounts—that crafty taxpayers can take beyond their stated purpose and capitalize on if they know how to play the game.