Even if your child will not be college age for quite a few years, it’s never too early to begin saving money for college. Here are five different, inexpensive ways to start a tax-free college savings account. In order to pick the one that’s right for you, weigh the pros and cons of each. But in the end, any savings program is better than none.

529 Savings Plans

Pick the state that has the best plan for you. Choosing your home state’s plan can result in tax and other benefits. In Michigan, EduGuide’s home state, families can begin with as little as twenty-five dollars in the Michigan Education Savings Program (MESP). (See related ShortCut: “Set Aside Twenty-five Dollars a Month for College: Without Raiding the Sofa Cushions.”)
Pro: Contributions are eligible for state tax deductions. In Michigan, it’s a $10,000 tax deduction ($5,000 for single filers). You can use 529 funds at any accredited postsecondary college in the United States and at many schools abroad.
Con: The plan’s tax-free status is up for renewal by Congress in 2010. The account value may fluctuate depending on investment options.

529 Prepaid Plans

Pay tuition now and lock in today’s rates. Most states have prepaid plans. Example: with the Florida Prepaid College Plan, you can buy your five-year-old two years of tuition at community college (a lump sum of $4,193) with $37.14 paid every month until your child starts college. The same two years of college thirteen years from now when your child starts college could be nearly $10,000.  By prepaying and locking in today’s rate, you could save $5,900.  If you didn’t lock in today’s tuition rate with a prepaid plan, you’d need to save seventy-seven dollars each month to pay for the same two years of college.
Pro: Guarantees against rising tuition costs. Monthly payment contract will motivate you to save. Can be used to pay for tuition at out-of-state and private colleges. Some states offer tax benefits associated with these plans.
Con: State residency requirements. Some plans have restrictions on transfers to another child. The money is tied up until the child starts college.

Education Savings Account

Open an account with any bank, broker, or mutual fund—much like retirement savings.
Pro: Can be used for college or any educational expenses K-12—including books, private school tuition, computers, and tutors. Lets you pick your own investments.
Con: Limited to $2,000/year per child. Tax benefits for some plans phase out for some families making more than $95,000. May tempt you to spend before your child’s college years.

Cash Back

Buy selected goods with a registered credit card and get one to ten percent cash back for a college savings account. Upromise, EdExpress.com, Babymint.com and MBNA Fidelity credit cards offer such programs.
Pro: Save while you spend. Average annual savings range from fifty to five hundred dollars. Registered friends can direct their earnings to your account.
Con: Limited dollar value. Fewer investment options. May tempt you to chase rebates and eat up savings you could put into your child’s account.

Roth and Traditional IRAs

Tax laws now let you take money from these retirement accounts to pay for college without penalty. You can open IRA accounts at any bank or investment agency.
Pro: Some experts recommend saving for retirement or a home before saving for college. This option allows you to save for both and choose how to spend later. You can pick your own investments.
Con: Limited to $5,000 a year per person if you are forty-nine or younger in 2008. Some restrictions apply. May confuse your retirement planning; your retirement fund may not attract contributions from family members.