The college savings plans known as “529 plans” are an excellent way to save money for your child's college education. Although contributions to the plans do not receive any federal tax breaks, the money withdrawn is not taxed, so any income earned within the plan is free from federal taxes and California state taxes. California's version of a 529 plan is known as the ScholarShare program.
Contributions to the ScholarShare program may decrease the taxable value of one's estate. They may also qualify for a yearly federal gift tax exclusion of $14,000 per donor, or $28,000 for married couples, per beneficiary. If contributions in a single year rise above that limit, then the account owner may treat up to $70,000 (or $140,000 for married couples) as having been made over the course of five years for the purposes of the gift tax exclusion.
It is also possible to change the beneficiary of a plan to the next generation by moving up to $14,000 per year to a new beneficiary. Such a move will not reduce your lifetime gift and estate tax exclusion.