If you are unfamiliar with 529 plans and have a child who is college-bound, here is some introductory required reading. 529 plans allow you to invest as much as $250,000 (in some states it's less) toward any single chosen beneficiary's college education, tax-free. That beneficiary can be your child, your grandchild, your neighbor's child, or even in some cases, yourself. However, this is not a sneaky way for you to save money tax-free outside of, say, an IRA. The plans' tax-free distributions are only for qualified school-related expenses. These plans are currently offered in all 50 states (with some states offering multiple plans to choose among), and there are two basic plans to choose from: College Savings Plans (CSPs) and Prepaid Tuition Plans (PTPs).

College Savings Plans allow you to invest in portfolios of investment options that are offered by individual states. The money in your CSP account can then be used to pay for tuition and expenses at any accredited college or university in the U.S., and even some overseas. Prepaid tuition plans, by contrast, let you put money aside to pay the tuition at a school in the state that offers the plan and (in some cases) lock in a price for tuition years before your plan's beneficiary matriculates.

These plans grow tax-free as long as you keep money invested in them. And starting this year, the money you take from the plans to pay for the beneficiary's college expenses are tax-free too (after 2010 the distributions will be taxed at the beneficiary's income tax rate unless Congress extends the tax break, which many believe it will).

As the contributor, you remain in control of the plan, not the beneficiary -- you determine when distributions are made and if you so desire, you can cancel the plan and get your money back (with some penalties). One of the nicest features of these plans is that anyone can contribute on behalf of any beneficiary and anyone with a Social Security number can be a beneficiary, regardless of age (there are exceptions to this, most notably in prepaid tuition plans).

State plans are usually sponsored by one or more investment groups. Vanguard offerings are currently available in five states, with CSP fund options in Iowa, Nebraska, Nevada, Utah and Virginia. Iowa's and Nevada's plans are run completely by Vanguard, while Nebraska, Utah and Virginia offer other fund family options as well. Generally, allocations among funds are limited by the state, although one can find more flexibility with some plans than others.

The Nevada plan, Vanguard's newest program, has the largest selection of Vanguard funds to choose from, either in combinations of multi-fund portfolios, or in 13 single-fund portfolios. In addition, there are three age-based investment tracks with ascending risk levels to pick from. Tracking isn't new to parents of grade-school children, but it may be a new concept when it comes to investing. The idea behind the age-based tracks is to find the appropriate risk/return level for your beneficiary as they approach college-age. When they're younger, a more aggressive, stock-heavy portfolio may be more appropriate. But as your young scholar-to-be nears college age, a more conservative portfolio of bond and money market funds can be more desirable.

However, there are those who may find the age-based tracks too limited in their scope, and for this reason, you still have the opportunity to mix and match the multi-fund and single-fund portfolios as you see fit to build a portfolio that matches your investment goals. In fact, Growth Index (VIGRX), one of the single funds available in the Nevada plan, is currently on my buy list. 

The other CSP run by Vanguard, College Savings Iowa, offers markedly less by way of investment options, with just four age-based tracks to choose among. While not administered by Vanguard, plans in Nebraska, Utah and Virginia offer more numerous fund choices in their 529 plans, and are worth looking into if you feel strongly about using Vanguard to help grow your beneficiary's college tuition but would like a broader selection of investment options.

However, rather than just looking for a Vanguard option, it's probably more important to look for special tax breaks. One of the most valuable is the break your home state may offer. Residents of many states that offer 529 plans are often allowed to deduct their 529 contributions from their state taxes when they invest in their home state's plan.

You can also make a change in plans if you need to. If you find a plan that improves on one you've already invested in (or you move and want to keep getting those state tax deductions), most states will allow you to transfer an existing 529 once a year. If you decide to buy into a 529 plan, go directly to the source and not through an independent broker, as their fees can cut greatly into your earning potential.

To learn more about these plans, a great source is the Saving For College website at www.SavingforCollege.com, which ranks and reviews each state's options. My best advice is to look around and do some comparison shopping to find out which plan will best suit your purposes and those of your chosen beneficiary.

More of Dan Wiener's advice is available on the www.AdviserOnline.com members-only website. For subscription information, see Become A Member.