A 529 plan is a tax-advantage college savings plan. It allows a taxpayer to put money aside for a beneficiary that must be used for qualified college expenses. For federal tax purposes, the 529 plan is treated similar to a Roth IRA; there are no tax deductions up front. You pay taxes on the money contributed now; however earnings and interest grow tax free. When the money in the plan is used, the taxpayer will not have to pay any taxes on the growth. The immediate tax benefit comes at the state level. The treatments of 529 plans vary from state to state. New York State offers a $10,000 deduction for married filing jointly, $5,000 filling status single, per year for plan contributions. The contribution directly reduces taxable income, thus lowering the overall taxes due at the state level. All contributions must be made by December 31. It is important to note that the taxpayer will be subject to a 10% penalty if the plan is not used for qualified college expenses.