It’s not news that paying for college is a complex topic. Not only can taxes (or avoided taxes) make a difference, the school itself can penalize a student by reducing aid if other assets are available.
This article by William Baldwin at Forbes.com cycles through three different alternatives for a grandparent adding to a future student’s college savings. While investing in a tax-advantaged 529 a seems like a no-brainer at first, it isn’t always the best approach:
http://www.forbes.com/sites/baldwin/2016/02/10/grandpas-529-helps-with-560000-college-bill/
All the tax savings may be for naught if the university reduces grant money in proportion to the amount available in the 529 plan. The article looks at various scenarios.
I’d add a caution to watch out for sales charges on 529s or any other financial investment. When I was in Indiana, I was looking at setting up a 529 plan, which was encouraged by a state income tax credit. One approved plan was rated well. An acquaintance in the financial planning business told me it was a good plan, and he’d be happy to set it up.
A little investigation showed why he would be happy: a 6% commission on the amount invested! Needless to say, I set up the plan directly with the plan operator, avoiding the hefty sales charge. Read the fine print, and ask questions!