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@loveisstrange: I don't really have any advice other than my parents' financial planner gave them all of the reasons you listed to NOT start 529 plans for me and my sisters. We will not do a 529 for LO but we will look into mutual funds (most likely).

This got long, sorry

To address a couple of your questions:

What if she gets a full ride somewhere? Full rides are very rarely given out, and in just the past few years the financial aid landscape has changed a lot, and even fewer full rides are given out now than just a few years ago. I would personally not factor this possibility into my decision, because it is so rare that that will happen. Grants are also harder to get now than in the past, and for many schools, the pool of money formerly used to fund scholarships is going to be a thing of the past because of legislative changes to the way public universities are funded. Monies in a 529 don’t have to be used just for straight tuition and books, so even if your LO got a full ride somewhere, it’s very likely she would still have qualifying educational expenses.

What is she wants to use it for a house or wedding? Well, I think you have to decide whether or not you think higher education is more valuable than a down payment on a house or a wedding. If you do, then I think it makes sense to protect it for that purpose and not make it available for general/other use. If you want to let your LO decide how to use the sum of money, then maybe it makes more sense just to invest it generally.

A 529 account should make significantly more money than you’ll ever see off a regular savings plan, even if it’s invested only marginally well. If it’s invested very well, the returns on your investment should be quite good – the good news is you invest with a Plan, so you don’t have to really do anything; the hard work is done for you by a professional. Your “income” growth on the 529 account is tax-deferred, unlike other investment options and when you withdraw money (properly) from a 529 to pay educational expenses, those funds are not federally taxed. Assets within a 529 plan are protected in the case of bankruptcy.

Some states also offer tax breaks for 529’s and the deposits you make into them each year.

We have a 529 for LO because we think it’s the best way to grow money and protect it for college.

Are your retirement accounts fully funded? That might be an option. You can earmark the funds for your LO's education but put the money in a Roth IRA. Obviously a Roth IRA has different withdrawal rules than a 529. Here's a good article: http://www.fool.com/money/allaboutiras/allaboutiras07.htm

In my (unprofessional) opinion, the money needs to be doing something better than earning interest in a bank account. You are literally losing money every year due to inflation.