Since 2002, state-sponsored 529 college savings plans have become a very popular way to invest money for a kid's future college education. As long as the proceeds are used to pay for college & secondary education expenses, 529's are federal tax-free; depending on the state which oversees it, a 529 can also be state-tax-free, and contributions into the fund may be tax-deductible. [Tax-free means that income earned from the fund is not taxed every year, but allowed to remain in the fund to compound and accrue that much more quickly. Tax-free when it you take money out means that you don't pay taxes on it then, either, as long as your use of the money meets the required conditions of educational expenses.]
Anyway, because anyone can set up a 529 for a kid--parents, grandparents, friends [gee, can I be your friend?]--they're popular vehicles for gift-giving/wealth-transferring, too. The typical $11,000 /yr tax-free gift limit applies for 529's, but a person can also give $55,000 at once, tax-free, and count it as 5 years worth of gifts. Helps compound faster that way. Unlike trusts, 529's remain in the control of whoever establishes them, even though they can only be used for a single designated kid.
This 2002 article from USA Today outlines a lot of the challenges and traps of investing in 529 plans. As with many investment vehicles, a lot of funds have spotty performance and/or unjustifiably expensive fees; a lot of financial advisors have conflicts of interest they don't disclose; and choosing among the state-by-state grid of investment options can be rather complex.
Last December, Metafilter-ites discussed some issues and options of investing for a 6-month-old's college education; it's useful to add the layman's perspective to your research pool. [via matt haughey]
the College Savings Plan Network [collegesavings.org] is a useful place to start researching 529's; it's membership is comprised of state treasurers and other officials responsible for college savings. There's no obligation, and no salesman will call on you.
Saving For College [savingforcollege.com], meanwhile, is a subscriber-based fund advisory, rating, and information resource. A lot of its potentially useful info is behind the subscriber wall, so I have no idea how it is. [Any users out there? Any other solid resources or approaches you've had good experieince with? Or things to definitely avoid?]