Tax-advantaged college savings.

• Position: Education

The 529 college savings plans were a good idea from the start, but severely hobbled by a year-end 2010 expiration date for the tax-free withdrawals that made the plans so attractive. As part of sweeping pension reform signed into law by Pres. Bush, withdrawals from 529 plans now permanently are tax-free. Nearly all states have 529 plans and roughly 30 provide additional incentives, such as a tax deduction to instate residents who invest in their respective plan.

The Administration's action could not have come a moment too soon, asserts the Financial Planning Association, Denver, Colo. Investments were starting to wane in the plans over the past two years, as parents and other family members began considering the expiration and started looking for other options to save college money for their children. The 529 is named for its place in the Federal tax code and comes in two varieties--college savings and prepaid tuition plans. Prepaid tuition plans are just that--tax-free as long as the money is used to finance college expenses. Each plan has various investment choices that range from low to higher risk.

The Deficit Reduction Act also provides positive news on the financial aid front, as it prevents a 529 account from being treated as a student asset on a Free Application for Federal Student Aid (FAFSA), which could limit an individual's chances for aid. Also, a tax-free distribution from a 529 plan to pay current-year college expenses will not impact income levels that could reduce financial aid eligibility in the next school year.

Federal tax law allows for a general accelerated gift option that permits individuals to average gifts over $12,000 per beneficiary ($24,000...