Renewed Hope for 529 College Savings Plans

Interest in 529 college saving plans is likely to pick up again on the strength of lower fees, more investment options and enhanced federal and state tax benefits, according to The Wall Street Journal.

This month, President Bush signed a law making permanent the federal tax-free treatment of money withdrawn from 529s for qualifying educational expenses.

Investors who have not thought of 529s as an investment option in a while will be satisfied with the revamp.

States have pushed 529 providers to lower fees and offer more investment choices. Fidelity Investment outbid current plan provider TIAA-CREF and also Vanguard Group to win California's 529 contract. The winning bid promised reduced fees, more investment choices and additional marketing efforts. Missouri overhauled its 529 plan earlier this year and replaced TIAA-CREF with a group including Vanguard, American Century Investments and A.G. Edwards.

With prices decreasing, the array of investments in 529s has climbed. In addition to mutual funds, some states are adding federally insured bank products.