A recent Merrill Lynch college savings survey, conducted by International Communications Research, found that 60% of respondents are very concerned about being able to afford the cost of a college education when their children are ready to attend. Yet despite such concerns, only 7% of the respondents were very familiar with the benefits of these new 529 college savings plans.

While some states are relying on prepaid tuition programs, which generally guard against tuition increases only at in-state public schools, many more are now implementing college savings plans that encourage investment by offering significant tax advantages and more flexibility than prepaid plans.

If you are looking for a new way to invest for college, you could capture a valuable tax-favored saving opportunity by participating in one of these programs.

What They Are and How They Work

State-sponsored college savings plans were first codified under Section 529 of the Internal Revenue Code by the Small Business Job Protection Act of 1996 to help families pay college tuition. They were subsequently enhanced by the Taxpayer Relief Act of 1997 to help families save for room and board, and other expenses as well. Each state has the flexibility to design its own plan, so you'll need to consider any plan you qualify for individually.