There are seemingly endless factors and choices when it comes to saving for college. One option, a 529 plan, is a special type of investment account that allows families to save money for education and invest it, usually in a fixed number of options they may change once per year.
Earnings in these accounts aren't subject to federal taxes, and many states offer state tax deductions or credits as well. However, families can choose plans from any state and fees and investment options differ.
But often, it's psychological factors that determine when and how families open accounts. Experts encourage families to weigh the significance of the following four emotional factors when choosing a 529 plan.
[Don't fall for these common college savings misconceptions.]
1. Do you procrastinate? It's easy to postpone opening a college investment plan because it seems too early to start thinking about saving for college or a family feels like it's too daunting of a task to research and pick a college savings plan. "Ease into it," says Dale Ellis, director of the Arkansas College Savings Plans.
"If you aren't comfortable with opening a 529 plan yet, start with a savings account," says Ellis. "It's not going to accumulate a lot of interest. But it doesn't have fees and there's no risk of loss of principal."
Then when families are ready, they can open a 529 plan account and deposit the money saved into a 529 plan. Once the money is in a 529 plan there won't be any additional taxes charged on interest earned, he says.
[Understand the tax benefits offered by 529 plans.]
2. What is your level of financial knowledge? Before thinking about whether to seek expert help in opening a 529 plan from a financial advisor or certified public accountant, parents should make sure they have a basic understanding of 529 plans, such as information on fees, investment choices and state tax benefits, says Leonard Wright, a California-based personal financial specialist and certified public accountant.
You can't determine whether or not your advisor will add value with advice on choosing investments, picking a plan, or long-term goal setting until you research what you don't know, he says. Use online tools such as those on the College Savings Plans Network website and Savingforcollege.com to compare plans, experts say.
Families should also judge how comfortable they are with choosing their own investments. Families who have more experience may prefer not to work with an advisor or to work with advisor who helps them choose an individual investments. Families who are less familiar with investing may find an advisor is a good option or may want to buy a direct plan with pre-packaged investments
[Learn to weigh 529 plan ratings when selecting an account.]
3. Will a financial advisor will add value? Once families have established that basic understanding and have a good idea about how much time they have to save and invest before the student who will use the money goes to college, they can evaluate if they need a financial advisor to help. The next step is to talk to the one you're already using for investments or to your certified public accountant about tax advice, says Jay Steinacher, 529 college savings group director at Union Bank and Trust, via email.
"If you need assistance with your other investments and you already work with a financial advisor -- that advisor may be a good place to turn with your 529," he says.
There are two ways 529 plans are sold: through an advisor or broker, or directly by the 529 plan manager -- in most cases, the company contracted by the state. Advisor-sold plans tend to have more investment options and options that are more actively managed than direct-sold plans, but those aren't the only differences.
"Costs are more when working with an advisor-sold 529 plan versus a direct-sold plan. The additional costs generally compensate the investment professional for their advice and expertise."
However, "Your advisor may sell you the 529 plan they receive a commission on and that they feel is best for you -- or they may even suggest that you look at your state's direct plan if they know it is a solid program," Steinacher says.
4. Is a particular plan is the right choice for a family, or just popular? People often make choices based on what friends or coworkers have done or recommend, much like the classic example of doctors talking on the golf course about decisions they've made that their colleagues then follow. Wright describes that kind of decision-making as "the golf course effect" and says families should be wary of it.
Families need to figure out why their friends are making certain choices to determine whether they should choose a similar option, he says. For instance, a friend could choose a plan because it's been in the news a lot or because he or she likes making all the investment choices, he says. Another family may be better off choosing a plan that has a pre-selected grouping of investments, he says.
For many families, investing in a 529 plan is the best option when saving for college, "just like the 401(k) is the best way to save for retirement," says Steinacher.
"There are a lot of solid 529 plans that will help you along your path of saving and paying for college," he says.
Don't fear investing in them, just work on gaining an understanding of your choices, experts say.
Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.
More From US News & World Report