Section 529 plans come in two types: prepaid tuition plans and college savings plans. The college savings plans are state-sponsored investment vehicles that let parents -- and guardians, grandparents or other family members -- deposit money into an account for a potentially college-bound child. Plans have different investment options, but mutual funds are the most common.

The money is good at any accredited college, university, vocational-technical school or graduate school in the nation and some overseas as well, and can be used for any education-related expense including tuition, required fees, books, supplies and even room and board.

If the child decides not to go to college, funds can be moved to the account of another family member. Leftover money can be rolled over to another 529 account as well. Most plans impose no age limits, so any member of the extended family, from infant nephews to grandmothers, can receive the money. Funds can even be kept until the original beneficiary's children are ready for college.

Earnings grow tax-deferred and the proceeds are tax-free if used for qualified expenses.

Most states' plans are open to non-residents, which makes shopping for a 529 plan more competitive. However, residents of the state where the plan is based often get a break on the initial investment or minimum contribution amounts.

Families of all income levels can participate. Low minimums make 529s accessible for lower- and middle-income families, while the lack of an income ceiling makes them attractive to wealthier users as well.

Contributions are tax-free and limited to $110,000 per couple over a five-year period. Most plans max out between $150,000 and $250,000. The fund continues to grow, but no more money can be contributed. Monthly contributions can be as low as $50. On the upper end, individual contributors can kick in $12,000 a year without incurring the federal gift tax. Contributors also can do a one-time, five-year deposit of $60,000. They can't contribute any more for the next four years, but the big gift effectively removes a chunk of change from their estate.

The downside to the 529 college savings plans is that they are subject to market volatility. Fund managers, however, gradually move holdings into more conservative vehicles as the child matures. With Education Savings Accounts, parents have to make those adjustments themselves.

The Investment Company Institute has a new brochure, prepared in partnership with the College Savings Plan Network, on 529 Plans. This 18-page brochure explains in detail how to invest in a 529 Plan and answers frequently asked questions. To request a copy, write to the ICI Investor Awareness Program, P.O. Box 27849, Washington, D.C. 209038-7850 or download it from one of these three web sites: www.collegesavings.org, www.nasaa.org, or www.ici.org.

College Savings Plans - State-by-State
The National Association of State Treasurers' College Savings Plans Network Web Site provides links from each state to the web page that contains information about the individual plans for that state. The 529 College Savings Plan tax laws differ somewhat state-by-state, so these are excellent places to get information for your state. You can also check out SavingForCollege.com which has similar information on the available 529 plans.