Are you a parent or parents considering a 529 College Savings Plan?

Morningstar recommends you look first at their home-state offerings.

States typically offer state-tax deductions to in-state investors, putting more money in their pockets. This may be the major benefit of 529 Plans.

"While these incentives can be meaningful, they don't necessarily overcome the disadvantages of a poor or costly plan," says Kerry O'Boyle, a Mutual Fund Analyst at Morningstar.

A 529 College Savings Plan offers the convenience of one-stop shopping, especially to novice investors. But keep an eye on fees that can erode your returns. Much like targeted retirement funds, many college plans offer age-based portfolios that become more conservative the closer your student gets to freshman year.

There are many online calculators to help estimate cost and returns. All states offer a 529 Plan and some have more than one.

"It can get quite complex," O'Boyle says. "We recommend that people keep costs as low as possible. Some 529 Plans have several layers of fees that make them more costly than other investment options parents could get directly."

Morningstar's top-rated 529 College Savings Plans are:

Colorado Scholars Choice (Legg Mason); Maryland College Investment Plan (T. Rowe Price); Nebraska College Savings (Union Bank & Trust); Utah Educational Savings (Vanguard); and Virginia College-America (American Funds). The Colorado and Virginia plans are sold through brokers.

Morningstar says the Maryland College Investment plan pulled ahead of the Alaska T. Rowe Price College Savings Plan after the Maryland plan eliminated its enrollment fee and reduced the management fee to 0.28%.

"The plans are almost identical and the Alaska plan remains a fine option for those already invested there," O'Boyle says. "But the overall lower annual asset-based costs of the Maryland aged-based options and that state's tax breaks on contributions earn it the nod."

Morningstar rates the Utah Educational Savings and Plan Trust highly because of its low costs, age-based investment options and solid mix of index and international offerings from Vanguard. Several states offer Vanguard's index option, but Morningstar liked Utah's combination of flexibility and low cost for investors.

The Nebraska College Savings Plan offers actively managed funds from American Century, Fidelity and PIMCO "at a decent cost." The plan offers four age-based tracks to match the risk-tolerance levels of most investors plus six "static" portfolios and 21 individual fund options, Morningstar says.

For investors working with a financial advisor or broker, Morningstar likes Virginia's CollegeAmerica and Colorado's Scholars Choice.

Morningstar's lowest-rated plans are Alabama Higher Education 529 (Van Kampen); Alaska John Hancock Freedom 529 (John Hancock); Missouri MOST 529 Advisor (Upromise); Nebraska AIM college Savings (AIM); West Virginia Cornerstone SMART529 (Hartford); West Virginia Leaders SMART529 (Hartford).

Morningstar says Alabama last year passed a law making earnings from 529 plans free of state tax for residents, but only if they invest in the state's plan. Morningstar zinged the broker-sold Alaska John Hancock Freedom 529 plan for "exorbitant" fees. It also says West Virginia's and Missouri's plans came with unusually high fees.

With a 529 Plan, investors are paying the state to put together a range of investment choices for them. The contribution levels are high and gifts from grandparents are handled easily, but other types of investments may make more sense.

The Pension Protection Act of 2006 didn't make changes to Coverdell Education Savings Accounts permanent. Unless Congress acts, Coverdell accounts after 2010 will return to a maximum contribution of $500 a year, down from $2,000, and withdrawals for elementary and secondary school expenses won't be allowed without a penalty.

"Coverdell accounts can still be rolled over into a 529 Plan at any time, but the long-term appeal of these accounts now pales to a large extent in comparison with 529 Plans," O'Boyle said.

Tax breaks and the convenience are the primary selling points of 529 Plans. But you can't know if a 529 Plan makes sense until you pencil it out.

Click here for five things parents and students need to know about 529 College Savings Plans.