“They would like to set up a 529 plan for their grandkids. Is this a tax deductible expense for the S corp and income to the employee?”------>I do NOT think so; 529 plan contributions are not directly related to your S corp business. There is no federal deduction for 529 contributions. Section 529 plans, which include college savings plans and prepaid tuition plans, offer several tax and nontax benefits. But unfortunately, a federal income tax deduction is not one of them. You can't claim a federal income tax deduction for contributions you make to your 529 plan. However, certain states offer state income tax deductions for contributions to 529 plans. You should check with your individual 529 plan or your state's taxing authority to determine the tax treatment in your state.