There are a few different college savings vehicles that exist such as 529 plans and Coverdell Savings. IRA funds can be used for education, too. Some use government savings bonds. Others don’t even use accounts specifically designated for education and instead put education savings directly into investment accounts, real estate, or even collectibles.
Benefits of 529s, Coverdells, and IRAs are that gains in the accounts are not taxed as they grow. When used for qualifying educational expenses, the asset growth in these accounts is never taxed which allows the funds to be put entirely towards school.
Another worthy vehicle you can use to fund to college is a permanent insurance policy. The cash value in a permanent policy accumulates tax deferred and can be accessed tax-free when properly structured. Unlike 529s, Coverdells and IRAs, the cash value in the policy may not be counted as an asset for financial aid purposes at public universities. Permanent life insurance can be a great way to provide an instant estate for your heirs while at the same time setting aside for college and other expenses.
A college savings plan should be started as soon as possible. I’ve had some clients want to establish plans when they were pregnant! The reason to get started early is that it allows the asset value to grow from contributions as well as from compounding interest.