College Savings: Follow the Obamas?

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.

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