"Most people don't know the investment vehicles available to them or what these cost," says John Wheeler, a CPA and certified financial planner (CFP) with the Fiducial office in Manassas, Virginia. "While state-sponsored 529s may be hot right now, I prefer to run a diagnostic on the client and their financial position before ever discussing what to do with their money. As I always tell my clients, 'I would hate to have you commit to a 529 or some other investment vehicle and then find out you were terribly underinsured.'  This scenario would be devastating in the event of an untimely death to a family that still has college costs down the road."

Section 529 college savings plans are indeed particularly appealing due to recent tax law changes. Now available in all fifty states and operated by the state or the sponsoring educational institution, these plans generally offer prepaid tuition programs or allow funds to be set aside for future college costs (including books, supplies and room and board) in a savings plan. Some states' plans have elements of both.   

"You're basically looking at three main advantages," says Wheeler:   

Tax breaks. You won't pay taxes on the income or growth of your investments while they are in the plan and funds for qualified educational expenses can be withdrawn tax-free. Some states even allow a tax deduction for any contributions to a plan.  

Account Ownership.  The account belongs to the donor, and it's the donor (i.e., parents), not the beneficiary (i.e., college-bound child) that retains full control over the account. Most plans will even allow the account owner to reclaim the funds at any time. However, any earnings on this "non-qualified" withdrawal will be taxed and there will be an additional 10 percent penalty tax too.

Enrolling and Contributing. Once you complete a simple form and make the contribution, the sponsor of the plan takes over to professionally manage your investment. Future contributions are just as easy, and unless you make a withdrawal, you won't receive any tax forms.   

On the downside, however, 529s "can be higher-priced compared with other college savings options," Wheeler says.  Also, the SEC and Congress have begun inquiries into big variations in the fees charged for the same investments in plans offered by different states. For some plans, these fees may even outstrip their tax benefits.      

Many parents fail to remember too that unless Congress decides to make the provisions permanent, the tax-free nature of 529 plans is set to expire after 2010. That means the plan beneficiary, the college bound student, may end up being taxed on the earnings on the investments in the plan after all -- certainly putting the brakes on this savings vehicle.

So what does all of this mean? Wheeler says there is no single answer, but a good advisor can counsel a family to assure an investment truly matches their savings timetable, tax situation, budget and tolerance for risk. Throughout the summer, Fiducial will be encouraging families to review their financial programs and shift them into high gear as part of the company's "REV IT UP" campaign. For now, he encourages families to shed some of the common misconceptions on paying for college:

MYTH 1: "Always follow a conservative path with your children’s college funds."
To gain ground on today's six percent to eight percent average annual tuition increases, you may need to grow the funds more aggressively, enjoying the benefits of long-term compounding. Then shift to more conservative investments as college approaches. 

MYTH 2: "Saving now hurts your financial-aid chances later."
True, financial aid tends to go to those showing the most need or the fewest assets. However, some investments, such as cash-value life insurance or annuities, may not count as assets when determining eligibility.  

MYTH 3: "Put college funds in your kids' names to reduce your asset base."
True, the investments will have to be in someone's name, and current tax laws do allow each parent to transfer $11,000 annually to each child with no gift tax implications. But financial-aid decision makers will consider 35 percent of the child's assets "available" to pay for college compared to just 5.6 percent of a parent's.

MYTH 4: "Smart kids earn scholarships and get campus jobs."
Full-ride scholarships are few and far between. And at many colleges, scholarship money can limit eligibility for other grant or work opportunities. A campus job will cover some expenses, but it will most likely fall short of paying for tuition, room and board.

MYTH 5: "You'll cover college costs with current compensation."
Typically, family savings account for 61 percent of college financing, and although your salary may increase annually, so does tuition. Based on current trends, you could pay as much as $150,000 to send today's newborn through a state university in another 18 years -- or more than a quarter of a million dollars at a private college.