Here are some 529 plan facts you must know. All 529 plans are not the same. Some states allow deductions on contributions, while some of them will have higher state taxes for outstate residents. Most of the 529 plans are free from federal taxes as long as the withdrawals are made for the sole purpose of paying the college expenses of the beneficiaries. If there are withdrawals for other purposes, then there is a penalty charge of 10%. This is a common factor in every 529 state plan.