In June, Congress passed a comprehensive tax relief bill that includes provisions that will make saving for college easier for most American families.

The College Board projects that a four-year public university education for a child born in 2001 will run nearly $100,000, while four years at a private college will approach $225,000 (assuming a 5 percent annual increase in college costs).

One of the best ways to pay qualified education expenses for your child or grandchild (or yourself for that matter) is through what are known as Section 529 plans. These are plans authorized by the various states and run by banks, brokerage houses or mutual funds. Nearly every state has 529s or soon will. They come in two flavors: prepaid tuition plans and college savings plans.

The more conservative option is the prepaid tuition plans. They guarantee that your money will match the growth in tuition at state-run colleges (currently 4.4 percent annually). These plans appeal especially to people with modest incomes who intend to send their children to state colleges or universities.

But be careful. Every dollar in a PTP means a dollar less in eligibility for financial aid: work/study grants, student loans, etc. Colleges generally expect students to contribute at least 35 percent of the assets held in the child’s name to tuition before determining need-based assistance. This compares to 6.5 percent of the assets of the parents. A sizable amount in a child’s 529 PTP account could drastically reduce eligibility for financial aid.

More aggressive choices are under the umbrella of the college savings plan. Here you can contribute a pool of money that is managed by the state treasurer or an outside investment adviser. In some cases, these investments are in stocks when the child is young and move gradually toward bonds and cash as the child approaches college age. Some states offer all-stock or all-bond options.

Unlike custodial accounts, in which control of the money transfers when the child turns 18 or 21, control of a 529 stays with the owner. The money can be used to pay for tuition, room and board, and books and fees when the beneficiary is in college, professional or vocational school--even graduate school. And any unused sums can be transferred to another family member.

College savings is an increasingly complicated matter. Your tax and investment adviser should be able to guide you through this minefield. Worked properly, a sizable contribution to a child’s (or grandchild’s) account can reap big estate planning benefits.

The advantage of a 529 plan is that earnings withdrawn after Dec. 31, 2001, no longer are subject to federal income taxes when withdrawn for education expenses. Some states allow fund gains to pass free of state tax; others let you deduct all or part of your contributions from your adjusted income.

Think about it. You can contribute $50, $500, $5,000 or up to $250,000 in a 529 plan for each of your children or grandchildren, no matter where you live or how much you earn. And no matter how much the account grows, withdrawals are free of income tax if used for the beneficiary’s college or grad school expenses.

That makes them a more attractive option than simply investing in a favorite mutual fund where gains are taxed each year and realized gains are taxed at withdrawal; or in a Uniform Gift to Minors Account (UGMA) in which money is controlled by the child rather than the parent.

UGMA money does not grow tax-deferred, although the taxes are lower. Until the child turns 14, the first $750 of annual gains is tax-free, the next $750 is taxed at the child’s rate. Anything above that is taxed at the parents’ bracket until the child turns 14, when all gains are taxed at the child’s rate.

One of the drawbacks to these plans in the past was the uncertainty of where Junior might want to go to college. What if you plunked down your hard-earned cash in a plan run by your alma mater and your kid decides to go to school somewhere else?

Under the new law, you can transfer (rollover) your account tax-free, and penalty-free, to another state’s 529 plan as often as once every 12 months. Because you have no control over the asset allocation decisions of the fund managers (New York, for example, allocates 55 percent to stocks, 45 percent to bonds), clever investors might see rollovers as a way of maximizing their investment returns by switching to a state fund with more successful management or a more aggressive asset mix.

Never inclined to keep things simple, Congress has differentiated the benefits available to families depending on their adjusted gross income (AGI). To get a handle on the subject visit www.savingforcollege.com. This Web site gives summary information on each state’s 529 plan terms as well as details on AGI limits, benefits and sunset provisions.

Congress performed a little sleight of hand with the bill. As widely reported over the summer, parts of the bill are to be phased in over the next decade, and the entire package "sunsets" in 2010 unless Congress decides to extend its terms.

For most of the education provisions, the effective date is January 2002. That means a family looking to withdraw money from an existing 529 plan for first semester tuition would be wise to try to find the cash elsewhere and wait for the more favorable tax implications of the new law to kick-in.

Also affected by the "Tax Relief Reconciliation Act of 2001" are Hope and Lifetime Learning Tax Credits.

Tax credits reduce the amount of taxes owed to the government. Hope Credits of up to $1,500 are available to earners with incomes under $80,000 (joint) and $40,000 (single), phasing out as income levels reach $100,000 / $50,000. The Hope credit is 100 percent of the first $1,000 plus half of the next $1,000 for a maximum of two years for each eligible student.

The Lifetime Learning Credit is 20 percent of the first $5,000 paid for qualified expenses for all eligible students in the family (graduate or undergraduate). There is no limit on the number of years the credit can be taken.

For many families, saving for college tuition and related costs is a high priority. Depending on your financial circumstances, however, retirement savings and investment should take precedence. After all, student loans and various forms of aid are available to go to school, but I have not yet come across a source of assistance to boost an anemic retirement account or an underfunded IRA.