Opening a College Savings Plan? Know the Options

By Candice Choi, AP Personal Finance Writer

NEW YORK (AP) — Saving for college is increasingly becoming an investor's game.

As tuition continues to climb, state-sponsored college savings plans have become widely hailed as the most prudent way for families to prepare for the future. The accounts are considered advantageous because they let families invest in the market and withdraw money tax-free to pay for education costs. But like their 401(k) retirement savings counterparts, many are learning that market swings are just one of the pitfalls of opening an account.

So far this year, for example, the performance of age-based 529 plans, which are designed to grow more conservative as the child nears enrollment age, has varied widely. Their returns through the end of August ranged from a loss of 7.17% to a gain of 5.40%. Overall they've averaged a loss of less than 1%, according to Morningstar.

Because most parents only save for college for little more than a decade, any fluctuations can be nerve-wracking for investors like Anthony Abelaye, who opened an account for his daughter, Sara, when she started kindergarten seven years ago.

"I'm concerned that my investment isn't growing quickly enough or that it could actually lose value" said Abelaye, a 41-year-old software engineer from Plano, Texas. He has considered stepping up his contributions or switching to a more aggressive investment mix to speed up growth, but fears taking on too much risk given the economic uncertainty. His daughter is already 12 and there's just $6,400 in the account.

"I'm just hoping there'll be something there when she turns 18," Abelaye jokes.

That's not to say families should shy away from 529 plans; the average published cost of tuition and fees alone at public schools is at $16,000 a year. But before opening an account, families should know that the choices they make can significantly influence how much they end up saving. Here are some key points to keep in mind when setting up a plan: