Buried in the news about President Obama and his wife, Michelle, earning more than $2.7 million last year was the disclosure of a rather important investment -- and possible loss -- in a nest egg that many view as just as important as savings for a home or for retirement: the college savings plans for the couple's two children.
The Obamas last year invested $240,000 in what are known as 529 college savings plans -- state-run investment vehicles designed to help parents reap tax benefits while saving for their children's college tuitions -- according to 2007 Senate disclosure forms and the couple's 2008 tax returns.
The Obamas -- who have two daughters, Sasha, 7 and Malia, 10 -- contributed $120,000 each to two different plans: one geared toward children up to age 8 and another for those between 9 and 12 years of age. Both plans are part of Illinois' 529 program, the Bright Directions College Savings Plan Program.
But, assuming the Obamas stayed true to their selections, right now their investments aren't looking so bright.
According to the program's Web site, the two plans saw substantial losses over the last year: the age 9 to 12 plan lost at least 27 percent of its value and the newborn to age 8 plan dropped at least 34 percent.
The White House did not respond to requests for comment on the accounts.
The stock market's precipitous decline since the start of the recession means that the nation's first family is hardly unique in seeing their college savings deteriorate.
But the Obamas, like other families with young children, have time on their side. If the market recovers by the time the girls attend college, their 529 plans could save the Obamas tens of thousands of dollars.
It all has to do with the tax advantages associated with 529 plans, experts say, and they can benefit both wealthy families -- the Obamas included -- and average Americans alike.
Why Invest in a 529?
State 529 plans are a relatively recent option for parents -- the oldest plans date back to 1996 and their popularity has grown ever since.
While investors do pay taxes on their contributions to 529s -- unlike, say 401(k) plans, where investors contribute pre-tax dollars -- earnings garnered from the plans aren't subject to federal taxes. Some states even let taxpayers deduct the first $10,000 contribution each year from their state taxable income.
Take the Obamas: If the first family saw their college savings plan investments grow by $100,000 by the time the girls matriculate, they could apply that money directly to their daughters' tuition costs. If they saved $100,000 outside of the plan, the taxes levied on those savings -- say, in the 35 percent tax bracket, currently the nation's highest -- would likely mean that the Obamas would ultimately contribute about $35,000 less to their daughters' education.
"The point is they'd have to put a lot more money in later on to get the same amount available for the kids' college education," said Tom Ochsenschlager, the vice president of taxation for the American Institute of Certified Public Accountants.
Taxed Less, Saving More
The Obamas also took advantage of a 529 feature that particularly appeals to wealthy individuals -- they front-loaded their contributions for five years.
Normally, financial contributions from parents to children above a certain amount are subject to gift taxes -- but under 529 plans, parents can make larger contributions and prorate them over five years so that the annual, prorated amount is below the gift tax limit. (For 2009, according to the IRS, the most an individual parent can give a child without triggering the gift tax is $13,000 or $26,000 per couple.)
If the Obamas had taken that $240,000 and invested it elsewhere over the next five years, they could face tens of thousands in taxes.
Most Americans, of course, can't afford to invest nearly as much into college savings plans as the Obamas have, especially during this recession.
Laura Lundberg told ABCNews.com that the downturn in the economy has forced her to cut back significantly on how much she invests on one of her sons' 529s, and said she hopes she can prevent her financial situation from getting so dire that she has no choice but to liquidate the fund altogether.
Lundberg and her husband, both 43, set up a 529 for their now 15-year-old son Matthew three years ago, with every intention of contributing $1,200 to it every year.
"Now we're looking at maybe contributing $200 for this year, that's how bad it's gotten," said Lundberg, who estimates that her husband's commission-dependent salary from a heating and cooling company will fall about 40 percent this year because of the struggling economy.
"It is very stressful," said Lundberg, who lives with her family in St. Peters, Mo. "My son is 14th in his class right now, which is awesome, but he's only a freshman and we don't know how he'll finish by the time he's a senior."
Lundberg said she worries about the day when she has to tell her son Matthew that they simply cannot afford to send him to Duke University in North Carolina -- the school she says he has his heart set on.
"I know that in two short years we're going to have to fill out the financial paperwork for colleges and when Matthew sees the bottom line, he'll realize," said Lundberg. "He'll realize just how much isn't there.
"Knowing how much college is right now and knowing it's not going to go down and that it's looming in the distance is hard," she said. "I don't know how we're going to make ends meet without leaving him in debt."
Lundberg's other son, who is just 11 years old, isn't likely to have a 529 to benefit from, thanks to the family's waning income.
"Unfortunately there is just no possibility of a 529 for my other son right now," said Lundberg.
"The dream of sending our children to college is becoming more distant every day," she said. "With the economy the way it is now, I can't see any possibility of putting more money in the account for a long, long time."
Lundberg is not alone.
Will the Recession Cut College Savings?
Joseph Hurley, the founder of Savingforcollege.com and the vice president at Bankrate, said that, according to his research, people have been investing fewer of their hard-earned dollars into their children's' education as the economy has plummeted over the past year.
"Contributions are down partly because people don't have the money anymore," said Hurley. "They've lost their jobs."
"Also, some people are just frozen into inaction, they're scared," he said. "They don't want to make an investment decision."
Companies that administer multiple state 529 plans -- like Oppenheimer Funds and Vanguard -- present a more mixed picture.
Rocky Granahan, a senior vice president at Oppenheimer Funds, said that the plans that Oppenheimer manages in five states -- Illinois, New Mexico, Nebraska, Oregon, and Texas -- have seen declines in the dollar amounts that people are contributing to 529 plans but increases in the number of 529 accounts opened.
Families crunched by the recession may have "a little less to save," Granahan said, but "the good news is that families are still making savings for college a priority."
Vanguard, which manages funds in Colorado, Iowa, Nevada, Missouri, New York and Pennsylvania, said that big, one-time contributions to 529 plans have declined while scheduled contributions -- like those made on a monthly basis -- have remained steady.
Tips on Participating in a 529 College Savings Plans
Hurley advises that no matter how nervous the stock market makes you, there are ways to manipulate your 529 to your advantage.
While specifics of 529 plans vary from state to state, because U.S. citizens can enroll in a plan in any state even if they do not live there, Hurley suggests finding an age-based plan, like the Obamas did.
"The aged-based option means you won't have to make as many decisions in terms of where the investment goes," said Hurley. "The plan's investments become more conservative as your child gets older."
Hurley said that most plans offer a choice of where your money is invested. Those who wish to be as conservative as possible with their money should look for plans that invest in money markets; whereas other choices may include multiple fund portfolios or individual mutual funds.
Shopping around to other state's plans and comparing the investment performances from plan to plan is another way to ensure you're investing wisely, said Hurley.
"The type of investment the plan uses -- whether it is index funds or actively managed funds or if the company hires outside managers to handle the pot of money -- all affects the performance," said Hurley. "Fees and expenses of applying also vary from state to state."
Hurley said that in 2008, Florida's 529 plan was rated the top in performance because it used separately managed accounts with hired money managers.
If you're strapped for cash and need to withdraw money from your 529 plan for something other than educational purposes -- like Lundberg is considering doing -- you could face a stiff penalty: federal income taxes on the earnings on your 529 investment plus another 10 percent tax penalty.
If you've lost money on your 529 plan, however, it's a different story. You can withdraw your money tax-free. In some cases, you may even be able to use the loss as a tax deduction.
What's a Pre-Paid 529?
Those unwilling to roll the dice on the stock market may be interested in pre-paid 529 plans.
A pre-paid plan locks in your tuition cost provided that your child goes to the in-state, public school, according to Hurley.
"You purchase a contract and the plan then becomes obligated to pay for the future tuition instead of you," he said.
"So, if tuition goes up, that is the plan's problem, not yours," added Hurley.
Most pre-paid plans do charge a premium, warns Hurley, to cover the inevitable increase in college tuition from the time the contract is purchased to when the child actually enrolls in a university.
Because pre-paid plans eliminate any market investments, Hurley said that this may be the perfect plan for those parents especially nervous about the sinking economy depleting their bank accounts.
More 529 Perks: Financial Aid, Later Education Expenses
Dan Danford, the chief executive officer of the Family Investment Center based in Joseph, Mo., reminds investors that contributing to a 529 may actually help your child's chances for financial aid when it comes time to apply to colleges.
The government will always take money from your child's accounts before the parents', said Danford, which makes it more economical to start a 529 -- which is always in the parents' name or the grandparents' name -- than to set up a regular savings account for your child.
"The government figures that if the child has the money, he should spend it to go to college," explained Danford. "Because a 529 isn't in the kids' name, it won't count against them when they apply for financial aid."
If your child does have a savings account, Hurley advises that you use it before the college years so that it is not considered an asset of your child's when it comes time to apply for financial aid.
"I tell parents that when the kids are in high school, if they have a chance to go on educational trips or need computers, spend money out of the kid's name first," said Danford. "That way, you still use it for education, but then you'll get more aid when they get to college."
Another perk to starting a 529, Danford said, is that there is no limit to how long you can hold on to the fund, even if you complete an undergraduate degree and still have money left over. Excess money can be used later on in life for advanced degrees or, in some cases, can be transferred to other family members.
ABC News' Karen Travers contributed to this report.