My recommendation is a combination.

Savings Bonds are great, especially for grandparents. Encourage this for birthdays, holidays, etc.

529 plans provide a good foundation.

Each of my kids have a regular savings account. I've been contributing my 'loose change' to this fund since they were born. Once the accounts hit their $1000 peg, I move the excess into a brokerage account. The idea behind the brokerage account is 1. I can get a more aggressive return, and 2. Its in my name and I can get the tax credit for the donation to their education (given that tax laws remain constant).

All in all you don't have to make it all happen at once, as a little bit at a time will get you to where you want to be. The key in this is the planning. Look at it like a training plan. Plan the plan, follow the plan.

On an interesting side note, it will remain to be seen where higher education is in 10 to 20 years from an affordability perspective. The middle class has been squeezed hard over the last 10 years and there isn't much more room for squeezing. We are already experiencing significant growth in enrollments at the community college level. Four year universities will be looking under every rock for funding.

RB

First off, I commend you for being a socially responsible parent, unlike some of my in-laws who never saved a nickel for their kid's educations, and then wanted to send their kids to private colleges and complained that they made too much money to qualify for government grants.

When each of my three sons were born, I took out small allotments for US Savings Bonds. Not the best ROI, but like you, I didn't have enough money initially to plop into a big investment account. As I started making more money, I increased the allotments. When the state of Florida started a pre-paid college plan, I was able to buy one for all three sons out of the money I had saved in bonds. Check with your CPA if you have one on whose name to put the bonds in. With some other savings and some scholarship money--as well as going to state schools--it has not been a problem getting my oldest two kids an education. My youngest is a HS junior, and is very academically talented, so we may be looking at some more expensive colleges for him.

That sounds like a good idea. Starting off with a savings account and letting it grow and then moving it. hmmm...I like it. Thank you so much.

On the other topic, I just came from my bank and they showed projected growth of tuition in some of the major Universities around here. Hell, that is a nice house for what it would cost for a year. It's insane.

I also think I heard that at one of our major universities, the chancellor needs to get his house remodelled and enlarged. I forgot which one it was unfortunately. It's a shame what the money is going into.

I am very afraid what the educational sytem will be like when my son is old enough.

Check this site to compare various plans, some offer better (more) investment choices than others as well as have lower fee structures, minimum amounts to start, etc. You're not limited to your state plan if you didn't know that.

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Depending on your income level, I would recommend an Educational IRA first. You can contribute up to $2,000 per year. I think the IRS phase out rule for married joint filier is about $180k, less if single. As for 529 plans, www.savingforcollege.com is a good web site. One of the better plans is the Utah plan. Low fees and is managed by Vanguard.

[reply]That sounds like a good idea. Starting off with a savings account and letting it grow and then moving it. hmmm...I like it. Thank you so much.

Personally, I would steer away from the bank's savings account for a few reasons. The interest they give is generally piss poor. With a savings account, it is too easy to get at the money "for an emergency". And then it is too easy to not replace it.
I would open some type of registered education account. In Canada we have RESP's and the government even kicks in some money as well. The only problem with it can be if your child decides he/she doesn't want to go to college/University. Then you get hit for penalties.
I would also suggest talking to someone outside a bank. The bank will always tell you things to get you to invest with them. Talk to an independent consultant.

If I remember correctly you are in the triangle area of NC. One of the local triathletes I know is a financial consultant/counselor. I can give you his e-mail if you would like.

I would go the 529 route. There is less investment flexibility than the Education IRA (Coverdell Education Savings Account) but it's not that limited. Usually a fairly wide array of choices and you can always change from one 529 plan to another if you don't like the choices.

On the back end, the definition of "educational expenses" is broader in a 529 plan than a CESA. If your student gets a scholarship the 529 would let you pay for things like books, room, transportation, etc. tax-free with more flexibility. In addition, the 529 can stay in place longer (no age limit) and you can even take the money back yourself in a worst case scenario. Finally, 529 plans get counted as the donor's assets rather than the student's and will not reduce financial aid as much.

UGMA or UTMA (depending on your state) sound good but give the parent no control after the age of majority. They can also generate tax if they get large enough.

Prepaid tuition has been the best deal in the past few years. Unfortunately, it's been such a great deal that many states have had to stop taking contributions to their plans.

In a few years, when you can justify hiring the tyke to do something, contribute their earned income into a Roth IRA. This money has even more flexibility and can add to their retirement if they don't spend it on college.

That would be great. You can email me at rene.haagen@ci.raleigh.nc.us.

All the advice is greatly appreciated. Thank you all so much.