NEW YORK (MainStreet)—There are a number of vehicles and strategies to choose from for parents looking for ways to put together a bankroll to send their children off to college. The tax advantages provided by 529 plans make these savings plans a commonly considered option. Depending on the situation, a 529 plan may or may not be an ideal solution. Here is some insight from a few subject matter experts.

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The In-State Advantage

Parents that are seeking out an optimal 529 plan for their child may not have to look that far. "My first piece of advice would be to take a look at your home state 529 plan," said Eric Korbitz, a CFP and founder of Korbitz Financial Planning in Milwaukee, Wis. "Some states provide tax deductions for contributions into 529 plans. For example, in Wisconsin you can contribute up to $3,000 per beneficiary into a Wisconsin 529 plan and get a state tax deduction for it."

After taking into account the impact of a tax deduction, Korbitz advises individuals to check out plan fees. "Take a look at what the expense ratios are for plans in-state as compared to some of the lower-cost plans," he said. "There has been a fair amount of competition in this area in the last few years. Costs are coming down and that's a good thing for investors."

Korbitz notes that the value of a tax deduction may outweigh the savings from a reduced expense ratio. "Because of the tax deduction benefit, people are often better off putting money into their own state plan even if it is a little bit more expensive than some of the other discounted plans you may hear about like Utah," he said. "A state tax deduction essentially provides sort of like a match to you."

First Things First

Before settling on a 529 plan, parents may want to check the size of their nest egg first. "The obligation for parents should be to make sure they save enough money for their own retirement -- not for college," said Jon Ten Haagen, a CFP and founder of Ten Haagen Financial Group in Huntington, N.Y. "For college there are loans, grants and scholarships -- for retirement you have none of these. I like 529 plans for grandparents that want to reduce their estate, because they are not going to need the money for retirement."

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If money invested in a 529 plan does not end up being used for eligible college expenses, the price can be costly. "You pay a 10% penalty plus tax on any of the gains upon distribution," Ten Haagen said. "It limits you and locks you in to something you may not be able to afford."

Ten Haagen also advises potential investors to take portfolio allocation into account. "I don't think 529 plans are diversified enough or rebalanced enough," he said. "Most plans are in far too many bonds. I work with the majority of my clients to help them find a good, tax-efficient mutual fund that is well-diversified and is held in their name for control of their assets."

Weighing Investment Objectives

When determining whether or not to contribute to a 529 plan, parents should think about how much they want to sock away. "It makes sense for somebody looking to save a significant amount of money for college," said Joe Hurley, founder of "If they live in a state like New York, offering a state tax deduction, they have even more of a reason to use a 529 plan."

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Hurley also emphasizes that parents should balance their focus on saving for college with retirement considerations. "If somebody is not taking advantage of their employer's 401(k) plan match, that is probably what their first move should be before contributing to a 529 plan," he said.

Parents should carefully review their investment objectives prior to committing to a 529 plan. "Anyone who is really devoted to day trading probably won't be happy with a 529, because you're much more restricted in your investments," Hurley said.

--Written by Billy Fisher for MainStreet