If they gave out scholarships just for being wonderful, no doubt your child would have all the money she needs for college. But, in reality, the competition for scholarships (merit-based and need-based money you don’t have to pay back) and grants (need-based money you don’t have to pay back) is fierce, so you’re better off not relying on them as a source of income. “Not unless your kid is in the sixth grade and is seven feet already and can dunk the basketball — or plays Carnegie Hall,” says Joseph Hurley, founder of the financial-information website Savingforcollege.com.

While you might consider using retirement funds for your children’s education, think carefully about that before forgoing plans geared specifically for college. As Hurley explains in his book, Savingforcollege.com’s Family Guide to College Savings (Savingforcollege.com, $8, www.amazon.com), you cannot easily borrow from your 401(k), and you might have to pay income tax on money you take out of an IRA prematurely.

So shoulder the burden of college bills by putting money in one (or several) of the following three most popular plans.

529 Plans

Named after the Internal Revenue Code Section 529, 529s are state-run, tax-advantaged college savings accounts. At least one — or, in most cases, two — are operated by every state. They come in two varieties: a prepaid tuition plan and a savings plan — both tax-free when you withdraw the money for college. Neither 529 plan limits how much you can contribute annually, although they both have an overall limit, which can be as much as $300,000 per beneficiary. And the money is tax-free when you use it for education (but be warned: Tax laws can change).

Keep in mind that if you don’t use the money for college, there are penalties. “If you think there is a decent chance this money is not going to be used for college, then a 529 is probably not the vehicle for you,” says Kathy Kristof, author of Taming the Tuition Tiger: Getting the Money to Graduate With 529 Plans, Scholarships, Financial Aid and More. (Bloomberg Press, $19, www.amazon.com). And each state (or the broker hired by the state to manage the plan) charges fees for opening and maintaining an account, as well as for many other investment activities. Sometimes those fees make the effort less worth your while.

Both Kristof and Hurley recommend that when you start shopping for a 529 (compare them all at Savingforcollege.com), you start by looking at your own state’s plans. You’re not required to enroll in your local option, and sometimes it’s not the best one out there. Investment options, fees, restrictions, and plan performance all vary, so do a little comparison shopping (in and out of state) before signing up.

Here, the lowdown on the two 529 plans.
With prepaid tuition plans, you are doing just what the name implies: paying a percentage of future tuition by putting money in the account now.
Pros: “You’re locked in at a steady tuition rate,” Hurley says, “so future tuition increases don’t affect you, because you’ve already paid for it.” Since college tuition has been increasing about 6 percent each year, you could wind up with a good deal.
Con: The institutions at which you can use this tuition credit are limited — usually to major public universities in your state. You might be able to transfer the value of the plan to use in a private or out-of-state school, but, depending on the state, it won’t be worth as much.

A college savings plan is “like a retirement account,” Hurley explains. You deposit as much as you can each year and invest the whole account in, say, a mutual fund or a stock fund — kind of like a 401(k).
Pros: The money is yours tax-free as long as you use it for college expenses, and you can use it at any accredited school you choose. You also have some freedom when it comes to how to invest it (within the limits of what’s offered by the plan you choose).
Cons: As with any investment fund, you take a bit of a gamble when you choose how to invest it. If the market doesn’t do well, neither do you, and you might not end up with enough to pay for tuition. “You make contributions as you’re able and select from the investment options available to you,” says Hurley, “and hopefully it grows over time.”