Now would be a good time to review the terms, conditions, and procedures of your 529 plan. Not all plans are alike. So don't assume that the procedures your sister follows for her Iowa college savings plan will be the same for your Rhode Island college savings plan (or prepaid tuition plan). At a minimum, you should investigate the following issues.

First, bear in mind that you'll probably have to notify the 529 plan administrator that your child will be making a withdrawal for college expenses. In most prepaid tuition plans, the payout procedures are standardized. For example, some prepaid tuition plans require that all plan withdrawals must occur within 10 years of the time the beneficiary starts college. College savings plan procedures can differ considerably from plan to plan, though. No matter what your plan, consider the following questions:

• What education expenses does the plan consider "qualified"?
• When must you notify the plan administrator that you wish to withdraw funds from the plan?
• How do you document that the withdrawal has been used to pay qualified education expenses? How soon must you provide this documentation?
• Are college expenses paid directly from the plan to the educational institution, or is the beneficiary reimbursed for expenses? How long will reimbursement take?
• Is a minimum withdrawal amount required, or is there a limit on the number of withdrawals per semester?
• Does the state's definition of "eligible educational institution" differ from the federal definition, and does your child's college satisfy the definition?
• Does the plan require a minimum level of attendance (e.g., half-time enrollment) for qualified expenses other than room and board?

Second, make sure you understand how a qualified withdrawal from a 529 plan will affect your state income taxes. And remember--you're entitled only to the state tax benefits (if any) offered by the state in which you reside.

Third, explore how a withdrawal from a 529 plan will affect your child's eligibility for financial aid from the college as well as federal financial aid.

And finally, investigate how to coordinate a 529 plan withdrawal with the Hope credit (renamed the American Opportunity tax credit for 2009 and 2010) and Lifetime Learning credit (which you may be able to claim on your federal income tax return) to maximize your income tax benefit. Although you may claim one of these education credits in the same year you withdraw funds from a 529 plan, your 529 plan withdrawal may not be completely tax free on your federal income tax return that year.

Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.