**Unlimited deduction states (7)**: Colorado, New Mexico, South Carolina, West Virginia (full state contribution deductible). **Highest capped deductions**: Pennsylvania ($17,000 single/$34,000 joint per beneficiary), Nebraska ($10,000/$20,000), Mississippi ($10,000/$20,000), Oklahoma ($10,000/$20,000), Louisiana ($12,000/$24,000 with 2.4% tax rate). **No deduction/credit states (8)**: California, Delaware, Hawaii, Kentucky, Maine, New Jersey, North Carolina (federal tax-free growth only). **States with credits instead**: Indiana (20% credit up to $1,500), Utah (5% credit), Vermont (10% credit up to $250).

Unlimited states provide the best tax benefits for high earners making large contributions ($50k+/year).

IRS allows **5-year gift tax averaging**: contribute $90,000 ($18,000 × 5 years) or $180,000 (married couples) in a single year without triggering gift tax or using lifetime exemption ($13.61M in 2025). **Example**: $90,000 lump sum in Colorado (unlimited deduction, 4.55% tax rate) saves $4,095 state tax immediately + $81,000 grows tax-free for 18 years at 7% = $257,000 (vs $179,000 taxable account after 20% capital gains). **Requirements**: File Form 709 electing 5-year treatment, must not make additional gifts to same beneficiary for 5 years (or use exemption), contributor must survive 5 years (or portion reverts to estate). **Ideal for**: Grandparents, high-net-worth families reducing estate, newborn beneficiaries (18 years growth).

**It depends on your state's rules**. **In-state plan required (18 states)**: Alabama, Arizona, Arkansas, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Mississippi, Montana, Rhode Island, Vermont, Virginia, Wisconsin—must use home state plan to claim deduction. **Any plan accepted (17 states + DC)**: Colorado, Connecticut, Delaware, Michigan, Minnesota, Missouri, Nebraska, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Utah, West Virginia, DC—can use any state's plan and still deduct. **No benefit states**: California, Delaware, Hawaii, Kentucky, Maine, New Jersey, North Carolina—doesn't matter which plan. **Best strategy**: If your state offers deduction, use home-state plan first (up to limit), then add out-of-state plan for better investment options.

Example: Pennsylvania resident contributes $17,000 to PA plan (deduct), then $20,000 to Utah/Nevada plan (better funds).

**Carryforward rules (33 states)**: Alabama, Arizona, Arkansas, Colorado, Connecticut, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia, Wisconsin, DC—excess contributions can be deducted in future years (typically 5-10 year carryforward). **No carryforward (remaining states)**: Deduction is lost if exceeds annual limit. **Example**: New York resident contributes $15,000 (limit $10,000 married).

Year 1: Deduct $10,000, save $630 (6.3% rate).

Years 2-6: Carry forward $1,000/year (5-year carry). **Federal gift tax**: Contributions >$18,000/year ($36,000 married) count against lifetime exemption unless using superfunding election. **Strategy**: If your state has carryforward, front-load contributions early (more tax-free growth), then use carryforward to spread deductions over 5-10 years.

**529 vs Taxable Brokerage**: $10,000/year × 18 years @ 7% return → 529: $369,984 (tax-free) vs Taxable: $326,145 (after 20% capital gains) = **$43,839 benefit** + state deduction ($500-900/year × 18 = $9,000-16,200). **529 vs Roth IRA**: Similar tax-free growth, but 529 offers state deduction + higher limits ($18k/year vs $7k Roth) + no income limits.

Roth has more flexibility (can withdraw contributions penalty-free, use for retirement). **529 vs Coverdell ESA**: 529 wins—higher limits ($18k vs $2k Coverdell), state deduction, no income limits, same qualified expenses. **529 vs UGMA/UTMA**: 529 wins—tax-free growth (vs kiddie tax), financial aid friendly (5.64% vs 20% assessment), parent control (vs child at 18-21). **Best strategy**: Max 529 first if state offers deduction, then Roth IRA (parent), then taxable brokerage.

**Qualified expenses (federal tax-free + penalty-free)**: Tuition/fees (college/K-12 up to $10k/year), room/board (on-campus actual cost or off-campus Cost of Attendance allowance), books/supplies/equipment required for enrollment, computers/software/internet (college only), special needs services. **Non-qualified withdrawals**: Earnings taxed as ordinary income + 10% penalty.

Principal (contributions) always tax-free. **State deduction recapture**: 15 states claw back previous deductions if non-qualified withdrawal (Alabama, Colorado, Georgia, Iowa, Mississippi, Montana, Nebraska, New Mexico, Oklahoma, Oregon, South Carolina, Virginia, West Virginia, Wisconsin, DC). **Exceptions to 10% penalty** (still taxed): Death/disability of beneficiary, scholarship received (can withdraw up to scholarship amount penalty-free), military academy attendance. **Strategy**: Withdraw qualified expenses first, leave non-qualified for last (or change beneficiary to another family member), keep receipts for 3 years (IRS audit).