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Well, I think I found the answer. The 529 accounts. Anyone with experience?
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You're right, 529 plans are perfect for your situation: can only be used for education, and you control it with your nephew as the beneficiary.
There are many plans held with different companies, associated with the different states. You can use any of the plans, no matter which state you live in. You might want to check with the plans associated with your state, as you may get a state tax deduction when you put the money in. I live in New York, and NY's plan is with Vanguard and Upromise, and it is a good plan. Vanguard uses only index funds with low expenses. Upromise is good, maybe, because when you buy groceries, Upromise adds money to your account. (Ok, maybe you buy a 2-liter Coke and get $0.02, so it's not that great.)
Some of the plans are only sold by brokers, and the brokers earn a commission. Try to avoid that. If you use NY's plan, you do it yourself at
www.nysaves.org. The simplest best investment choice is an "age-based" plan that has more stocks when the child is younger, and moves more to bonds as they get closer to college age. Most of the plans probably have this type of choice.
-Tom