Q. There's plenty of news about these "529" college saving plans. What's the most important change?

A. That's easy: Starting next year, qualified withdrawals from 529 savings plans will be completely exempt from federal tax. That should spur tremendous interest.

Q. Does this make 529 plans a no-brainer, something every college saver should use?

A. First things first: People should continue to fund their IRA and 401(k) retirement accounts because it is so important to have money saved for retirement, and because the tax benefits of those accounts remain compelling. The 529 plans, though, will see money that might otherwise go into Uniform Gift to Minors accounts, savings bonds, and early payment of home mortgages.

Q. What about Education IRAs? Are they still a good deal?

A. Absolutely. Just like the 529 plan, the Educatoin IRA offers tax-free growth, and it was improved by the tax bill. The $500 maximum annual contribution, for example, increases next year to $2,000. Income limits rise for couples too, phasing in at $190,000 instead of $150,000. And though age limits still apply, investors can have almost unlimited choice among funds, stocks, and bonds. On the downside, the Education IRA constitutes an irrevocable transfer of assets to the student, and there's usually no state tax deduction. Ultimately, the decision about whether to first fund an Education IRA or a 529 depends largely on what state you live in. The new law for the first time lets you fund both an IRA and a 529 in the same year.

Q. Unlike IRAs, 529 savings Plans are sponsored by individual states. Why do they seem to change so much every year?

A. There's competition among the states, so they're improving and offering more investment choices. Contribution limits in many plans have reached nearly a quarter of a million dollars.

Also, states are doing whatever they can to attract their own residents. Some offer state tax deductions on contributions. In Virginia, Nebraska, and New Mexico, 529 account balances don't count when calculating state financial aid. There are even matching state contributions, as in the case of Louisiana and Michigan.

Q. When should a resident of a particular state use another state's 529 savings plan?

A. First investigate your home-state plan, then compare. As I mentioned, your home state is likely to provide financial incentives that you won't get from others. You can also expect your home state to have more interest in your welfare. For example, if program expenses rise, they might go up more for nonresidents than for residents.

Some items aren't easily discerned, such as the impact of state law if you die or if there's a legal claim against you. Some states, like Louisiana and Maine, specifically protect against lawsuits. But until it's tested in court, you never know.

In any case, it pays to be familiar with other states' plans, because the federal government prohibits changes to your investment selections unless you switch to another state's plan or name a new beneficiary. The new law will allow switching once every 12 months.

Q. What about states that offer a poor 529 plan, or no plan at all?

A. I expect every state to have a 529 savings plan in operation by the middle of 2002. There were plenty of substandard programs two years ago, but in almost every case states have made the changes necessary to be competitive.

But I still see some plans with features that concern me. The Michigan 529 savings plan, for instance, imposes a much harsher penalty on nonqualified withdrawals (such as early withdrawals) than you see in other 529 plans. The Tennessee program gives the beneficiary ownership rights that you don't normally see in a 529 plan. Most investors won't like that, although it might be an attractive feature for a grandparent who wants to be sure that a grandchild, and not the child's parents, ends up with the money.

Q. Should I worry about a plan's investment expenses?

A. Yes - but no to the exclusion of other factors. Just as with mutual funds, there's a wide range of expenses working against your 529 accounts, ranging from zero for some interest-bearing investment options to more than 2% a year for a technology fund in Arizona's plan. Investing through a broker can add expense, and with some plans, such as Ohio's and Rhode Island's, nonresidents must pay the higher costs of broker-sold accounts even if they don't want to use one.

Montana charges no fees, but that's because its plan invests in bank CDs. Utah's no-fee money market option uses a state treasury fund. Vermont offers an odd, no-fee option tied to a U.S. Treasury index and backed by student loans.

For more-aggressive investments, such as stock funds, it's hard to beat the low-fee options offered through TIAA-CREF in several states. Iowa's funds, from Vanguard, charge just 0.65% per year, and Utah and Indiana offer some low-cost index funds.

Of course, what really matters is your investments' bottom-line performance after expenses, and how well a plan services your account.

Q. Which states' plans offer lots of investment options?

A. Maine offers 19, but most are available only through Merrill Lynch brokers. Arizona, Nebraska, and New Mexico each offer around 10. California is the only state with a "socially responsible" investment fund. On the aggressive-to-conservative scale. Arizona's tech fund is most aggressive - it dropped almost 50% in the fourth quarter of 2000. At the other extreme, Arizona and Montana offer a CD guaranteed to keep pace with college costs.

Q. Several states allow their plans to be sold by brokers. Should I use one?

A. It certainly is a growing trend. A broker can be helpful, but, of course, it depends on the broker. You might get some valuable planning advice and extra investment choices, as with Maine's 529 plan. But, because a broker's firm sells a particular state's plan, you might be steered into a plan that's not the best for your circumstances. And you will be charged a commission or higher expenses.

Q. Most plans offer an investment option based on a beneficiary's age or expected year of enrollment. The asset mix automatically grows more conservative over time. Are these a good choice?

A. States originally developed these "age-based" portfolios as a one-size-fits-all program, because federal law makes it difficult for account owners to switch investment choices. This "auto-pilot" approach can be good if you want investment growth potential from stocks, but don't want much market risk as your child gets closer to college.

But picking your own asset mix should work fine for investors who understand asset allocations. Investors will be able to switch into another state's 529 savings plan once every 12 months, so there will be enough flexibility to change the investment mix if need be. Another strategy: Stay with the same state, but temporarily name a new beneficiary. (It could even be yourself, since there's typically no age limit.) This lets you change investment options; then you can return to the original beneficiary later. It's a quirky system.