Start now. General George S. Patton was fond of saying that the perfect was the mortal enemy of the good. This is to say that a basic plan put energetically into action now is better than a perfect plan next year. Next year may never come. Things will always come up to knock you off track - especially if you have neglected an emergency fund cushion.
Every year you delay is a year of compounding that you miss forever. You can catch up on missed contributions, maybe, but not on missed time. Maybe you aren't ready to fully fund a college savings account yet. Fine. Put the building blocks in place first:
Why? Because of the way the federal government calculates the expected contributions of children and family members under the federal need-based financial aid system. If your family is wealthy, there won't be any need-based financial aid to be had. If your family is still very poor, you may be able to get substantial need-based financial aid. The real squeeze comes for families in the middle.
Pay close attention to how assets are titled. If assets are held in your college student's name, the federal government will expect your child to spend down most those assets on his or her college education. If assets are held in the parents' name, the expected family contribution as a percentage of that wealth for a single student is significantly lower. You can use an online calculator to run scenarios and estimate your family's expected contributions, after need-based financial aid, here. Keep in mind, though, that much of the financial aid will be in the form of federally-guaranteed student loans, not grants.
Minimize student assets
Ideally, you will have little or nothing held in the child's name when he or she goes to college. Students are expected to contribute 20 percent of all the assets in their own name to their college education in any given year. This includes money in an UTMA or UGMA. The more the student owns, the smaller the amount of need-based financial aid you can expect.
Minimize countable parental assets
While assets held in the parent’s name are preferable to assets held in the child's name, they still count against you when federal officials calculate the amount of need-based aid your child or children may qualify for. Assets parents own in Section 529 plans count against the family when calculating the EFC. Federal officials expect a family to spend 5.64 percent of their total assets on their child's education each year.
Maximize non-countable assets
But some kinds of assets do not count against the family for the purposes of determining need-based financial aid. These include: