Saving for Your Kid's College: Start Here, and Start Now

"College tuition is increasing at twice the rate of inflation every year," says Deborah Hohler, spokesperson for Upromise, a college service provider. Both Hohler and Ritter agree that saving far ahead of freshman year is a better move than taking on education debt via loans. Why? It gives students more flexibility in their decisions and frees them from years of college-loan payments.

"About 65% to 70% of all students graduate with [education] debt, and the average student debt today is $20,000. Students who take on debt today will be paying for that debt between 10 and 30 years -- and there's quite a bit of interest they'll be paying," says Hohler. "Starting as early as possible to save for college can make a significant impact for any student."

So how much do you need? That's going to vary drastically depending on things like what school your kid will be going to and what your timeframe is. To get a good handle on a number, head over to the College Board's College Savings Calculator or TheStreet.com's calculator How much do I need to save for college?.

The bottom line: Saving for a child's college education should start as soon as possible, but Ritter warns that it shouldn't take priority over your retirement savings.

The Plan

What kind of account to save in is the second issue that you need to address when planning for a financial goal. There are a number of options out there that can give you some real savings benefits when you're planning for a college education. Here are the ins and outs of each.

529 Plans. "A 529 is an account that gives you certain tax benefits for college savings. The reason you would choose a 529 plan over a taxable account is that you will have more money available to spend on college expenses if you use the 529 plan," says Ritter.

There are two types of 529 plans out there: prepaid plans and savings plans. Prepaid plans let you buy tuition credits at today's rates and use them in the future. Savings plans, on the other hand, let you stash money aside and let it appreciate until the tuition bill comes in. Plans are generally administered by states and managed by investment managers ; because of this, features and regulations usually vary from plan to plan.

One of the trickier things about 529 plans is the fact that their features and fee structures aren't always the easiest to figure out. If you need to get your facts straight, head over to Savingforcollege.com's 529 Plans section, where you'll find a number of 529 plan comparison tools.

Coverdell ESAs. Another option is the Coverdell Education Savings Account (ESA ), which used to be known as the "Education IRA ." Coverdell accounts have income and contribution restrictions ($2,000 maximum contribution per year), but don't have to be used exclusively for college -- a good option for those with pre-college kids in private schools.