Tax-Deferred Interest

• When you put money into a 529 college savings plan, it can earn interest that is not taxed. You fund the account with after-tax money, then invest it into various securities, such as stocks and bonds. These investments provide returns for the account that are not taxed. As long as you use the money for qualified education expenses, you will not pay taxes on the amount that you withdraw.
  
  

Contribution Limits

• One of the major advantages of using a college 529 plan is that it has very high limits. In fact, some of them have no limits on how much you can contribute each year. By comparison, the Coverdell education savings account allows you to put only a few thousand dollars in a year. Over the course of several years, you could set aside much more money with a 529 account than you could with other education savings account options.
  
  

Investment Options

• One of the limitations is that this type of account has only a few investment choices. If you are the type of person who likes to get involved with exotic investment options, this might not be the best approach. Generally with a 529 account, you can invest in stocks, bonds and mutual funds. This means that you will have to make do with limited choices or pick another type of account.
  
  

Financial Aid

• When your child is ready for college, she might want to apply for financial aid, such as a scholarship or government grant. If you have money in a 529 plan, however, it could affect her eligibility because the money is your child's asset.