The college-savings game in Texas is getting an upgrade.

On Nov. 19, OFI Private Investments Inc. — a New York-based subsidiary of OppenheimerFunds Inc. — will take over Texas' only in-state college savings plan, called a 529 plan after the section of Internal Revenue Service code that created it.

State officials say Oppenheimer should provide investors with portfolios that perform better than those offered by the plan's current manager, Atlanta-based Enterprise Capital Management Inc.

On a second front, the office of Comptroller Susan Combs is preparing to seek bids for a financial manager to run the second — and significantly scaled-back — version of the state's prepaid college tuition program. The new prepaid plan is scheduled to launch by Sept. 1, 2008.

The moves are intended to revitalize college savings plans for state residents who prefer to invest in a Texas-based program.

There's no requirement to invest in a state-run plan, of course, and Texans, unlike residents of at least 30 other states, get no tax exemptions or other tax credits for staying with an in-state plan.

"There is no reason, none," for Texas residents to look first at their home state plans, said John Henry McDonald, president of financial planning firm Austin Asset Management.

Texas families should research options nationwide and pick the best one regardless of where it's based, McDonald said.

Robert Wood, the comptroller's director of local government assistance and economic development, said many people favor investing locally.

"Texans would prefer to buy Texas," he said, and if the plan grows in size it could provide even better investment options or help create scholarship funds for residents.

The Texas 529 plan has been the only state-based option since 2003, when Texas closed its prepaid tuition plan that allowed residents to pay in advance for tuition at higher-education institutions.

Money withdrawn from 529 plans is free of federal income tax.

Under Enterprise, its outgoing investment manager, the 529 plan's investment portfolios have had unimpressive returns. Over a three-year period that ended June 30, 12 of the 19 portfolios posted returns in the bottom half of their peer group.

To make matters worse, investors pay fees that are some of the highest among state plans, according to savingforcollege.com, which tracks college savings plans.

The 529 program should improve under Oppenheimer, although the details won't be known until it officially takes over.

"It will be a much more attractive program, with lower fees," said Steve Charlton, a managing partner in New England Pension Consultants. Charlton is an adviser to the Texas comptroller's office, which administers state higher-education savings plans.

Oppenheimer will offer investment portfolios similar to the types offered by Enterprise, Wood said, so investors will have about the same range of choices.

Although Oppenheimer's investment choices and fees aren't yet known, the company has undertaken other rehabilitation jobs.

In March, Oppenheimer took over Illinois' troubled 529 plan and worked with that state to reduce costs to the point where it is one of the most affordable state plans.

Investment information provider Morningstar Inc., while praising the Illinois plan's low fees, criticizes Oppenheimer's lineup of funds as "thin" and too narrowly focused.

Still, the apparent improvements in Illinois reflect a nationwide trend in 529 plans: They are becoming more affordable and are offering better investment portfolios.

The 2006 Pension Protection Act made permanent the federal tax breaks for 529 plans, removing uncertainty about the plans' biggest advantage. As a result, money has poured into 529 plans over the past year.

As the plans have attracted more money, states have negotiated lower fees and better investment choices.

Although it's nearly a year off, Texas' second try at a prepaid tuition plan will resurrect the idea of paying for tomorrow's tuition today.

The new plan won't allow parents to lock in the price of tuition, as the initial plan did. But it will offer families the choice of buying "units" in three types of plans that can be used as currency at schools.

The most expensive would help pay for tuition at the priciest public university — in recent years, the University of Texas at Austin. The other plans are designed to pay the average cost of tuition at other four-year schools and at community and technical colleges.

The units may not cover expected tuition costs, though, depending on investment returns and the rate of tuition increase. In that case, schools would have to make up the difference — putting the financial onus back on the state and the school's endowment and donors.

relder@statesman.com; 445-3671

Status of Texas-based plans

Tomorrow's College Investment Plan

Type: 529 plan, allows tax-free withdrawals to pay for higher education

Status: Open. Switching to OppenheimerFunds on Nov. 19

Assets: $230 million

Other tax advantages:None, primarily because Texas has no state income tax.

Texas Tomorrow Fund

Type: Prepayment of tuition at current prices

Status: Closed

Assets: $1.8 billion

Texas Tomorrow Fund II

Type: Purchase of units that help pay for tuition at state

higher-education institutions

Status: Scheduled to open by Sept. 1, 2008

Assets: N/A

More college savings options:

Coverdell Education Savings Account

No upfront tax deduction, but withdrawals are tax-free.

Contributions limited to $2,000 per account per year.

Can be used to pay for K-12 expenses.

Key benefits will expire after 2010 unless Congress extends them: Contribution limit would drop to $500 and K-12 expenses would no longer be covered.

Other state 529 plans

Most states offer plans open to residents of any state. To find the best plans, consult savingforcollege.com, an independent Web site, or collegesavings.org, a site created by the College Savings Foundation, a Washington trade group.