How safe are your college savings accounts?

Joseph Connolly is intent on saving money to send his 4- and 6-year-old boys to college. But the market's downward spiral isn't helping their college savings plans.

"Seeing the numbers, I had to call the company and say, 'Am I interpreting this information correctly?' And sadly, I was," said Connolly.

When the market nose-dived, so did the Connolly children's 529 plans. The statements revealed a combined loss of $6,000.

"When I looked at what a bath I've taken based on the earnings - or lack thereof - it didn't make sense to liquidate and switch now," said Connolly.

While the temptation may be to bail out, most experts say you should do what Connolly did and sit tight.

"If you move too quickly right now, you could regret it later on," said Joe Hurley, vice president, Bankrate.com.

Hurley advises parents with young children to make sure their investments are in age-based plans that start out more aggressively.

"You really should have most of your assets invested in stocks, because over time they should perform best and give you the best hope of keeping up with tuition," said Hurley.

Age-based plans become more conservative over time. If the wait is too nerve-wracking, or your child is closing in on college, you can liquidate. But remember, you could face penalties unless your account is "underwater." In other words, the value is less than what you put in, and then the investor might be able to take a tax loss.

That money can be reinvested in another 529 plan after 60 days. The liquidated funds can be moved to more conservative investments like money markets or CDs.

Meanwhile, Connolly has some time. He has12 more years until his firstborn walks onto campus.

"I will be happy if we are able to provide half or more of the funding for my children's college," said Connolly. If you have a 529 plan, be aware that, by law, you can only make one change each year in how the money is invested.

If you're just starting to save, a prepaid tuition plan is another option. In that case, you lock in today's tuition rates so they will apply when your student enrolls years from now.


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