: What are the pros and cons of setting up a 529 plan for myself? I currently work full-time and I am going to graduate school part-time. I was wondering what the pros and cons of setting up a tax exempt college account for

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To clarify, the IRS defines a qualified distribution is a distribution that's used to pay for a qualified expense (see p5). In the context of 529 plans, these are

Tuition and fees required to enroll at or attend an eligible educational institution
Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

savingforcollege.com has a tool to look up whether or not an educational institution is eligible for tax-free 529 distributions.
Benefits

You mostly covered this benefit in your question, but the tax-exempt growth is a major benefit. Contributions to a 529 plan grow tax-free, and assuming you use the funds for educational purposes, you're not required to pay taxes on the earnings or withdrawals. This is less of a benefit if you're looking to start grad school immediately or in the next year or so, but it's still a benefit.

Depending on which state you live in, your state may offer state tax deductions for 529 contributions if you choose to invest in a state plan. This might be useful if you're starting grad school and don't have enough time to achieve a lot of tax-free growth. If your state offers tax deductions on your contributions, your account can function as a pass-through account, and if you itemize, you'll reap a tax savings on your contributions to the plan anyway.

Drawbacks

As you said, one potential drawback is that if you don't use up the money in the account and decide to withdraw the remainder for personal use, you're required to pay taxes on it in addition to the 10% penalty on the earnings. However, you can change the beneficiary of the plan from yourself to someone else, and the new beneficiary can still take advantage of tax-free growth on the remaining funds and use these earnings for educational purposes. Depending on the value of the account, gift taxes may apply, so consult a tax professional before doing this just to make sure.

Depending on the 529 plans available to you, you may face fees that negate any potential tax deductions. If you have a longer horizon, you may be able to choose an asset allocation that earns you enough tax-free growth to negate the effect of these fees, but with a short horizon, it's definitely something worth considering.

If you choose to invest in an out-of-state 529 plan, your local state may tax even the qualified distributions.

Some states offer 529 prepaid tuition programs; these are usually only for undergraduate education, and some of them require that all tuition credits be used by the age of 30. Obviously, check to make sure that whatever plan you invest in (if it's a prepaid tuition program) will work for your graduate education and that you're aware of any limitations to its use.

Other points

I mentioned growth above. If you have a short horizon, it's probably best to choose an asset allocation that will provide you some stability and maybe some income, but not a high level of risk that could cost you a lot of the value. This article recommends bond and/or interest funds instead of equity funds for people with a short time horizon.

I want to mention one more point because a) a lot of people don't know about it, and b) it's somewhat complicated, but can be beneficial in some cases. If you incur an unrealized loss in your 529 account and decide to cash out the account (perhaps because you need the money now to pay your educational expenses and can't wait for a market reversal), you may be able to deduct that loss. From the section titled "Losses on [Qualified Tuition Plan] Investments":

If you have a loss on your investment in a QTP account, you may be able to take the loss on your income tax return. You can take the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Your basis is the total amount of contributions to that QTP account. You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit.

It's worth at least knowing about something like this in the event that you invest in a 529 plan with a short horizon but lose money right before you need it.
The situation may be trickier if you receive state-level deductions, you're subject to the Alternative Minimum Tax, etc. If you find yourself faced with this situation, talk to a tax professional with experience dealing with 529 plans who has heard of this deduction.