Catch Up to College Savings

Start Saving Something

Even if you only have a few years, start saving. Every little bit will help.

You should still consider opening a 529 college saving plan.

"Especially if you're in a higher tax bracket, it still makes sense to contribute to 529 plans, even if the student is approaching college age," says McGrath. "All the earnings on that money in the 529 will be tax-free when used for qualified college expenses, compared to tax rates as high as 35% if kept in personal accounts."

Just be sure to put the money in conservative investments. You clearly don't want to risk it on the next hot stock. Consider short- to intermediate-term bonds, suggests Rande Spiegelman, vice president of financial planning for the Schwab Center for Investment Research. If you need the money in a year or two, go for ultrashort bond funds.

Just don't open a custodial account, such as a Uniform Transfer to Minors Act account. That can hurt his or her financial aid chances. Theoretically, that account is in his name and is his for the taking when he reaches the age of majority in your state. But for financial aid purposes, the lower amount of assets in your child's name, the better.

And if you were planning to transfer your own assets to your kid to sell and save some taxes, remember that the rules changed with the May tax package.

As a refresher, under the old rules, if your child was age 13 or younger, any investment income he or she generated was taxed at your rate, hence, the kiddie tax. So in the past, many parents have gifted appreciated assets to their 14-year-olds, who would no longer be subject to the higher taxes and could thus help lower the tax bill.