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Saving for College

Tax-free 529 college savings accounts may not stay that way, but they'll still be a smart way to plan for your child's future.

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This story appears in the November 2005 issue of Entrepreneur. Subscribe »

So-called 529 college savings accounts--inelegantly named for the section of tax code that gave them life--have been attracting parents of school-age kids since the code was enacted in 1996. The accounts grow tax-deferred, and withdrawals used for qualified higher education expenses became tax-free in 2002. The investing public has taken notice--last year, assets in the plans soared 49 percent to $52.3 billion and rose another 6 percent in the first quarter of this year, reaching $55.4 billion.

"I always thought 529s were a good deal, [even] before they became totally tax-free," says Joe Hurley, founder and CEO of Savingforcollege.com LLC. Now, he says, they're virtually a no-brainer for parents or grandparents who want to set a little something aside for Junior's education.

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