Changes add appeal to a college-savings plan

Another advantage to 529s is their accessibility. Accounts can be opened in some states with as little as $25. And contributions can be made regardless of an individual's income. Michigan, for example, will accept as much as $125,000 per year, and income limits that often exclude high-income taxpayers from federal tax breaks such as Hope Scholarships don't typically apply to 529s.

Often, 529 plans are marketed directly by the state treasurer's office, and all have toll-free telephone numbers and websites available to process applications. To learn details about 529s in a given state, visit Hurley's website (www.savingforcollege.com).

These plans are becoming so popular that stock brokers are now selling 529s, usually offering an out-of-state plan.

That's generally not a good idea, suggests Tom Pinto, a spokesman for TIAA-CREF, the giant educators' retirement-plan operator that administers 529 programs in 12 states. Brokers add fees and commissions that don't apply if you simply stick to the plan in your own state, he says. And you lose any state-granted tax breaks, as well.

There are some negatives to 529 plans. For example, they don't give the investor any say in how the money will be invested. That is left to the plan administrator. In addition, 529s don't guarantee a profit. The biggest foe that 529 plans face right now is a tough stock market. Many 529s have posted double-digit losses over the past year.

But some states have options that protect investors' principal. The Ohio College Advantage Savings Plan, for one, offers state backing on its guaranteed savings plan. It also offers a variable-investment option (not guaranteed).

Another guarantee is the College Savings Bank, of Princeton, N.J. It offers a certificate of deposit that is guaranteed to rise with hikes in tuition costs, says Peter Roberts, the bank's chairman. (Average tuition, and the CD rate, rose 5.2 percent in the year ending July 31.)

Still, 529s are meant to be long-haul investments, and over time, stocks generally outperform bonds and money-related instruments. So it's fair to assume that 529s invested in the stock market will eventually spring back to life.

While 529 college-savings plans provide many advantages, they do offer a limited number of investment choices.

Those who want a greater role in decisionmaking may favor opening a Coverdell Education Savings Account (formerly called an Education IRA).

Beginning next year, investors can contribute up $2,000 a year, up from $500. Contributions are not tax deductible. But withdrawals for education expenses - including private elementary and high school expenses - are tax free. Beneficiaries of these accounts must be 30 years old or younger.

In the past, parents had to choose whether to invest in 529s or education IRAs. Next year the restriction vanishes. You can invest in both tools. Coverdells are marketed by banks, mutual funds, and brokerages.

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