How to Save for College Now

News flash: College is expensive. OK, you probably already knew that, but the truth is tuition isn’t getting any cheaper. Do you know how you’re going to pay for it (or did you almost faint at the mere mention of tuition)? Whether you’re in the family-planning stages or already have a teenager or two with attitude, these money ideas will get you up to speed on how to finance that big ol’ brain of hers.

A 529 plan was much talked about in 2008, when many involved in this type of plan saw their investments drop 30 percent thanks to the stockmarket debacle. But don’t let that deter you. Here’s the scoop: A 529 plan is a “qualified tuition plan” or a tax-advantaged savings plan. These plans are sponsored by states, state agencies or educational institutions, and are authorized by Section 529 of the Internal Revenue Code. There are two types of 529 plans: prepaid and savings.

The 529 savings plans allow an account holder (that’s you, parent!) to set up an account for a student (your little one) for the purpose of paying for eligible college expenses. Investment options often include stock mutual funds, bond mutual funds and money market funds. These shift toward more conservative investments, so you you’ll start seeing your account stabilize as the account beneficiary (again, your little one) gets closer to college age.

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Prepaid tuition plans allow you to purchase units or credits at participating colleges and universities for tuition (and sometimes room and board). Most plans are sponsored by state governments, and many of them guarantee your investment in plans they sponsor (i.e. you’ll definitely get your money’s worth). It allows you to lock in a tuition price early, so even if (when) tuition prices go up, yours won’t. Most plans require that either you or the student be a state resident. Also, there are some stiff penalties associated with withdrawing from this plan, so if you think your kid isn’t going to want to enroll in a state college, you might want to reconsider.

A Coverdell account, or an education savings account, is similar to a 529, but differs in a few key aspects. First, Coverdells have more stipulations or “qualifiers” in order for you to open an account. Second, the total amount you can contribute per child cannot exceed $2,000 per year. Third, if you’re a single tax-filer, your gross income has to be $110,000 or less, and if you’re filing jointly, double that or less ($220,000). The big “pro” with this type of account? The funds can also be used to cover private elementary or high schools. (Meaning you won’t have a Gilmore Girls situation and have to borrow from your parents to send your kid to that awesome school.)

If you start super early, a Roth IRA can be used toward your kid’s education. Here’s how: Generally, you can’t withdraw from a Roth IRA account until you’re 59-and-a-half and have held the account for at least five years, unless you’re OK with paying a tax on any earnings. But higher education qualifies as an “exempt” withdrawal. Just make sure you’re not taking away from any funds you’ve saved for your retirement or “nest egg.” (Hence, the “start early” part.)

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Custodial accounts, or UGMAs (Uniform Gifts to Minors Act) and UTMAs (Uniform Transfers to Minors Act), are essentially trusts that you contribute money to—and that your child will have access to when they turn 18 or 21 (depending on state laws).

Although there’s no cap to how much you can put into an account, it’s smart to stop at $13,000 in order to avoid getting hit with the gift tax. Two “cons” to consider for this type of account: These kinds of accounts will be taken into consideration for financial aid as they’re considered the student’s assets. So if your household income would allow your child to qualify for a big aid package, you might want to go for a different type of plan. Secondly, once your kid hits the access age, they can use that money for whatever they want (not just education). Yeah, think hard about that one.

The American Opportunity and Lifetime Learning tax credit are both tax breaks that can be claimed for education costs. Many 529 contributors don’t believe they can claim these types of breaks, but it just takes some strategy. Pay at least $4,000 of the expenses out of pocket or from a taxable investment account, and you can claim the American Opportunity Tax Credit (a $2,500 max tax break) if your income is below $180,000. You can only claim one credit per year per student.

It’s time to start looking, even if your kid is just finding out they have feet (cognitive development, ya’ll). The best resource is Fastweb, which is essentially a huge list of scholarships. You can filter by state, type and award amount, so you can keep up to date on those that your kid might already qualify for (such as ones based on ethnicity, residence or background.) Keep a list of the award names and corresponding website or phone number, so you can remember all the ones you want your kid to apply for when the time is right.

Are you one of those parents who places a huge emphasis on having a hobby (like piano or ballet)? Good—time for your kid to start golf caddying. Don’t scratch your head just yet: The Evans Scholars Foundation offers scholarships which pay full tuition for four years and award housing grants. (Amazing, right?) Fourteen universities participate in the program. Applicants must be sponsored by their club, have caddied for two years (and be caddying at the time of application) and posses excellent academics, demonstrated financial need and outstanding character.

Would your child rather eat mud (or veggies) than work as a caddy? There are other cool (and financially rewarding!) scholarships to check out, including schools that offer tuition for twins and triplets, scholarships for tall people, and even scholarships for those who can call ducks. Yes, ducks.