Once an obscure, misunderstood college savings vehicle, 529 college savings plans now rival UGMA/UTMA accounts as well as taxable mutual fund accounts when it comes to the investments that financial advisors recommend most often to clients who are saving for college. A December 2001 study commissioned by Manulife Financial of Boston found that 74% of the 200 financial advisors surveyed sold 529 plans.

So what opened the door for 529s? First and foremost, advisors say it's the new tax law that eliminates federal taxes on qualified 529 withdrawals. The case for a 529 is even more compelling if, as in Michigan, the state offers additional incentives.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.