Benefits of a 529

[meltoine]

What are they? 

We opened one for DS when he was born. Last year while doing our taxes we realized that we get no tax benefit from it because we don't pay state income tax. We have a mutual fund account that is getting almost twice the return of this 529, so I'm thinking of putting DS's money there instead, but I want to make sure I'm not overlooking some other great benefit we'd be missing out on. 

Also, what are the penalties if I decide to move the money already in the 529 to the mutual fund?

[Deleted]

You won't owe (federal) taxes on the growth of the 529 when you take the funds out to pay for college.

You will if the money is in a regular mutual fund.

[EmilieMadison]

The tax benefit comes later. The investment is able to grow tax-deferred and funds withdrawn used to pay for education costs are tax free (fed).

[Deleted]

If you close or move the money out of the 529, you'll pay 10% penalty and your highest income tax rate on the gains.