(MONEY Magazine) – You can't keep a good idea down forever.

Seven years ago, this column proposed a simple tax break for families struggling to set aside enough money to put their kids through college (see MONEY, July 1990). We called our idea SAFE--the Savings Account for Future Education. As we envisioned it, families could invest after-tax dollars in their children's accounts at banks, brokerages and mutual funds. Whatever the kids eventually withdrew--including earnings--for room, board and tuition would go to them tax-free. Whatever they spent for any other purpose, however, would be fully taxed and subject to a stiff 10% to 20% penalty.

President Bush was intrigued enough by the idea to send it over to the Treasury Department. And though analysts soon concluded that the breaks would reduce U.S. annual tax receipts--then around $1.1 trillion--by only $1 billion, that was apparently $1 billion too much. SAFE seemed to die.

But other people who read the column did not forget the idea. One was New York State Assemblyman Paul Tonko, a Democrat from Amsterdam, 30 miles west of Albany. This past summer, he joined with a bipartisan group of state lawmakers to pass a tax-deferred college savings plan similar to SAFE.

"Yes, I remember the MONEY column," says Tonko. "We've been pushing for this savings program for a couple of years now, and we're happy it got initiated."

The new law will let parents contribute up to $5,000 a year to a so-called Family Tuition Account, which will be managed through the New York State Comptroller's office. For New Yorkers, the contributions and earnings will be exempt from state taxes, as long as the money is used to pay bills at any accredited college in the country. Moreover, all participants will escape federal tax on the earnings until they are withdrawn, when they will be taxed at the student's presumably low rate.

The only drawbacks seem minor: Families can't accumulate more than $100,000 per student, a provision designed to prevent wise guys from building massive tax shelters. There is also a modest 5% penalty on money withdrawn within the first three years--even for college bills--or ultimately spent on anything but education.

Furthermore, Comptroller H. Carl McCall notes that the New York plan is open to anyone, including people living in other states, though he adds: "Obviously, it's more beneficial for our residents because of the state tax exemption."

The best news of all is that the idea of tax-deferred college savings plans is gaining momentum across the country. When New York launches its plan on Jan. 1, it will join Connecticut, Indiana, Kentucky, Louisiana, New Jersey and Utah in offering such savings programs. And Barbara Jennings, head of the seven-year-old College Savings Plan Network in Lexington, Ky., which promotes savings programs nationwide, expects around a dozen more states to create plans by the end of next year. In addition, 15 states have established prepaid-tuition plans and seven others will do so in 1998.

One catalyst for this burst of activity is the new tax law, which defers federal income tax on earnings in both types of college savings plans.

Still, each state plan has its own particular twist. For example, Indiana allows one-time lump-sum deposits of up to $25,000 and annual contributions of as much as $9,405, currently the state's average public school tuition. In addition, the money is managed by Pegasus Managed Assets Balanced Fund, which has returned an average of 14.2% annually over the three years to Sept. 1. By contrast, New Jersey, which is launching its program on Jan. 1, appears to be stressing safety over growth: The state plans to have all contributions guaranteed by the Federal Deposit Insurance Corporation.

The bottom line remains the same, however. College savings plans with tax incentives for middle-class families make sense. Polls show that the great majority of parents fear they can't afford the $12,000 to $30,000--in today's dollars--that four years at an in-state public school can cost, let alone the $70,000 to $120,000 that elite private universities are demanding. Intuitively, they sense that tuitions will continue to rise at twice the inflation rate, or 5% currently, just as they have for the past decade. Yet parents also know that if they can somehow get their children through college, the kids figure to earn an average of 50% more during their lifetimes than high school graduates will.

College savings plans will help those families and this country. We can only add that the editors of this magazine are proud of whatever modest contribution our SAFE proposal may have made to get this ball rolling.

FRANK LALLI, Managing Editor