Getting Educated About 529 Savings Plans

Finally, be aware of high fees and other penalties. Just like mutual funds, 529 plans can charge lofty fees that essentially eat away at your earnings. Some plans' fees can be as high as 2%, whereas others are only 0.58%. So read the fine print.

Each February, Morningstar.com puts out a report that rates all the plans and their corresponding fees, so be sure to check it out.

What's worse, in an effort to stay competitive, some plans are imposing penalties on residents who invest elsewhere. As an example, Illinois has started imposing a 3% state tax on the earnings residents receive from another state's plan. Horrible.

So do your homework. Saving for anything is hard enough, so the last thing you want to do is lose Junior's beer money to extraneous fees and penalties.