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College Savings 101 Take notes on the pros and cons of 529 plans.

By Scott Bernard Nelson

Opinions expressed by Entrepreneur contributors are their own.

If you're the parent of a child younger than 18, odds are you've noticed a lot of talk about 529 plans lately. Every state now offers at least one of these college savings programs (named for the relevant section of the tax code), and starting last year, the federal government made withdrawals tax-free if the cash is used for higher education. The total value of dollars tucked into 529 accounts has increased tenfold since the end of 2000, and states, mutual fund companies and financial advisors are tripping over themselves to pitch various plans.

Like Roth IRA accounts, money in these state-sponsored plans grows tax-free and can be withdrawn sans tax. Doing Roths one better, 529 contributions also qualify in some cases for state tax breaks.

Plus, you can contribute to plans anywhere, and your future student can use the money at any accredited college in the United States. Finally, it's possible for parents, grandparents or other interested parties to contribute more than $100,000 in one shot without triggering gift-tax consequences-although the minimum initial contribution in virtually every plan is $1,000 or less.

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