To save money for children's college educations through a special tax-free account.

By virtue of a law under Section 529 of the Internal Revenue Code, states sponsor accounts in which earnings grow free of tax and from which withdrawals may be made without paying tax if the money is used for qualified college expenses. Each state contracts exclusively with a financial-services company to administer its plan, so each state plan has different costs and investment options. Each state offers a savings plan, which investors can fund with up to $250,000. Investors are free to use plans outside their own states. Each state may also offer a pre-paid plan, which guarantees owners their contributions will cover tuition for an in-state student at a public university, or more than one. In some states, contributions into 529 plans are state-tax-deductible. Children do not own funds in a 529 plan.

Families that would benefit from saving money free of tax for college, especially those able to make large contributions to the plan.

Families that can afford to make only nominal contributions. These families are likely to find that other types of tax-advantaged education savings accounts, such as U.S. Savings Bonds or Coverdell Education Savings Accounts, carry lower costs. Families should also be aware that the tax-free nature of 529 savings plans will expire in 2011 unless Congress changes the enabling law. Finally, families ought to consider which kinds of accounts affect a student's chances for financial grants or loans.

College savings plans are best opened and funded when children are young to take maximum advantage of compounded tax-free earnings.

Contributions to 529 savings plans are at the discretion of the account owner.