The assets in many college savings plans generally can be used for any accredited post-secondary school in the country, including public or private, community, graduate or vocational-education schools. This is a big relief for parents who are reluctant to contribute to any plan that would limit a child's school choices, as prepaid tuition plans can.

In general, anyone can contribute to a college savings account, regardless of income level or the age of the beneficiary. Some plans do require the beneficiary to be a resident of the state, while others just require the investor to be a state resident. A few innovative programs have no residency requirements and are open to anyone in the United States. You can open an account for a wide range of people, including children, grandchildren, or nieces and nephews.

Since these plans require investment management and administration, states often select financial firms to manage their programs. For example, the State of Maine recently introduced the NexGen College Investing Plan, which is managed and made available by Merrill Lynch nationwide. This 529 college savings program provides the flexibility of using the assets at any accredited post-secondary school in the United States, and contributions are invested in portfolios of Merrill Lynch managed mutual funds and certain bank deposit products that are tailored to the age of the beneficiary.

For example, during the early childhood years the primary investment focus might be on stock mutual funds as a way to offer growth potential when the child has the time to ride out market ups and downs. As the college time horizon shortens, however, the investment emphasis might shift to a more conservative asset allocation in bond and money market funds in order to minimize price fluctuations and preserve capital.

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