If you are asking if the earnings will be subject to income taxation, the answer is yes. Whether it results in a tax liability to you on your federal or state returns requires looking at your overall income and deductions.
If your state's plan offers a good tax deduction and a fixed option, you may benefit a little from using the 529 plan. Unfortunately, most 529 plans rely too heavily on risky investments, so check your plan options for a fixed account and the interest rate.
I don't know what the last question means specifically other than it is diversification into stocks and bonds. I've seen some online advisors that concern me with the way they advise based on risk-tolerance scores which have nothing to do with goals.
Three years is not enough time to invest for growth, so you should consider extremely safe and conservative investments for these funds if you can not afford a loss. Your safest route will be FDIC-insured accounts. If you want to get more creative and can stomach some...