 Units purchased must be retained for a minimum of two years before they can be used.Investments are not tax-deductible; however, the increase in account value over time, as well as disbursements to pay for higher-education expenses, are both tax-free.Disbursements for purposes other than to pay for higher-education expenses are subject to income taxes and/or penalties imposed by both the program and the Internal Revenue Service; exceptions are made for certain circumstances such as the death of the beneficiary or the beneficiary receiving a scholarship, in which case income tax is still imposed but penalties are not.