But some states like Kansas, Illinois, Pennsylvania and Maine are letting residents claim a tax break for saving in a 529 regardless of where they open their plan. In July, Arizona became the latest state to extend parity when it passed a law allowing residents to deduct up to $750 in contributions to any 529 from their state taxes.

You can start finding the best plan for you by logging onto various Web sites, which also have improved lately. Morningstar recently unveiled a new 529 Plan Finder that lets individuals compare the performance of various 529s as well as fees, tax treatment and the like. Bankrate also has a map that compares 529 plans in each state.

Another option is Savingforcollege.org, which rates plans and also lets you compare such things as a plan's various fees, minimum contribution limits to open and fund the plans, the kinds of investment choices offered and tax perks that may be available to participants.

Don't forget Wall Street 

The College Savings Foundation study found that more parents -- 31 percent -- have put their college savings in cash than any other investment choices such as stocks, bonds or mutual funds available. Trouble is, the returns offered by money market funds or other "cash" equivalents won't give you the kind of returns necessary to amass a significant college nest egg. Bonds, for example, have gained 5.44 percent annually, while Treasury bills grow about 3.79 percent, according to Ibbotson Associates, a subsidary of Morningstar.

So don't play it too safe, especially if your future grad is still in diapers. You'll need to buy stocks, which historically have grown 10.65 percent a year.

How do you strike the right balance between high return and risk? You can eliminate some of the guesswork and stress by opting for a 529 plan that offers age-based investment portfolios. Assets in these funds, which include stocks, bonds, cash or a mixture of all three, are automatically rebalanced over time, becoming more conservatively invested as students near college.

Don't assume all age-based 529 funds are the same. Some may be more or less aggressive depending on who's offering them, says Norton.

"Investors have to look at the underlying asset scheme to see if they're getting something too conservative or too aggressive," Norton says. "But if the asset allocation is something they're comfortable with, then the age-based funds make a lot of sense. It takes the pressure off of individual investors to determine the precise moment to move to fixed income."