The primary tax-advantaged options are 529 plans—offered by every state—and pre-paid tuition plans.

529 plans offer:

1. generous limits in account size allowed
2. tax-deferred growth
3. tax-free withdrawals if used for qualified expenses
4. The option to rollover funds to a Roth IRA if anything remains after paying for college

Details vary by state, and some states offer residents tax advantages when investing in their in-state 529 plans.

Pre-paid tuition plans have become less popular as the financial benefit is greatly reduced if the prospective student does not attend an in-state college. The number of states offering pre-paid tuition plans is down to 18, and one private company. Of the 18 states, only seven are open to new accounts.