This is from the (only) State Sponsored 529 program for California..
ScholarShare is a state-sponsored, tax-advantaged 529 college savings plan that’s helping families and individuals plan for the cost of higher education. It’s available to any citizen or tax payer. And just about anyone can help contribute including Grandparents, other family members and friends.
Federal Income Tax Benefits
As a 529 Plan, ScholarShare offers unsurpassed income tax benefits. Although contributions are not deductible on your federal tax return, any investment earnings can grow tax-deferred, and distributions to pay for the beneficiary’s college costs come out federally tax-free.
State Income Tax Information
In addition to federal tax benefits, there are state tax benefits as well. For ScholarShare, tax treatment is as follows:
While contributions are not deductible for California income tax purposes, earnings accrue free of state income tax. Qualified Withdrawals and any outgoing rollovers free from federal income tax are also free from California income tax. California tax benefits related to ScholarShare are available only to California tax payers. You should talk to a qualified advisor about how California tax provisions affect your circumstances.
Estate Tax Planning Benefits
There’s another tax advantage unique to the 529 plan. There’s no federal gift tax on contributions up to $15,000 per year for single filers and $30,000 for married filers. There’s even an option to gift amounts up to $75,000 for single filers and up to $150,000 for married filers if pro-rated over 5 years. This means you could make a one-time gift equivalent to the 5 year amount and it could all qualify for the federal gift tax exclusion. Consult your tax advisor.