You can participate regardless of income. If your taxable income is too high, you can't take advantage of the education IRA, the Roth IRA, student loan interest discounts, or the Hope Scholarship and Lifetime Learning credits. Generally, the savings plans reduce financial aid less than prepaid plans. The savings plans present some disadvantages, however. Most commonly, plans shift your money from more aggressive, stock-oriented investments into less risky investments, such as bonds, as your child gets older.
Some plans invest very conservatively, which usually means lower returns.
Check out the plan's investment strategies carefully. You might do better investing on your own, even without the tax breaks. There's no guarantee the state savings plans will keep up with college cost increases. You could even lose money, though that's less likely the longer you stay invested or the more conservative the plan. At least one state, Kentucky, guarantees a minimal return.