Ways to improve college 529 plans

The Treasury Department's analysis of Section 529 plans, published this week, offers some useful recommendations for improving these state-based college savings plans, which have become increasingly popular financing vehicles for the middle class.

The report offers several ways states can improve their plans. Here are two we like a lot:

•Offer more age-based index funds. Funds that provide stock and bond allocations tied to a child's age are popular and well-suited for many middle-class families. That's because the proportion of stock gradually decreases over time, reducing risk of serious financial loss as the child approaches college age. But 5 of 48 state-based programs don't offer such funds. And while index funds have proved to be a cost-effective way to achieve good returns over the long run, only 23 of the 43 states with age-based funds offer them in index versions.

•Dump the home-state bias. Only Arizona, Kansas, Maine, Missouri, and Pennsylvania give a state income tax break to residents who put their money in the 529 plans of other states. If all states would do this, more parents could shop around for the least-costly plan that suited their needs.

Click here to read more of the Treasury's recommendations. Recently, Consumer Reports Money Adviser's Money Lab analyzed 529 plans, and found 5 that earned A's.  Click here for the report.