In November Jane J. Kim addressed concerns about 529s in the down-turned market in the Wall Street Journal Sunday. CollegeBasics thinks some of her suggestions may help. First, you can roll over your present 529 without penalty or tax deficit into a prepaid 529 which some states offer. Prepaid 529s lock you into current tuition fees at state universities which could be a very good deal if you have young children, considering the increases in college costs over the last decade. There are two drawbacks to consider. One is some states require you to pay a premium, an extra charge; and second, the regular 529s could possibly accrue more interest in comparison to tuition increases, depending on stock market improvements.
Another idea Kim shares is to wait to cash in on your 529 until your student’s in his/her third or last year of college. The thinking is waiting two years may allow the 529 to regain some of its losses. Also, any monies left over from the 529 because only one or two years were withdrawn can be redesignated to a younger sibling.
Kim also suggests managing your 529 under present-day conditions. For example, if you will be using your 529 funds in the next couple years, it is best to invest conservatively in money market funds, CDs, mutual funds, or stable-value funds. If you can wait a few years before having to use your 529, you may want to buy more stocks as prices are low and you can afford to wait for future gains in the market. In general, you should check your funds and make sure you have international stocks and that you are globally diversified. If today your 529 is less than what you originally invested, it may be time to consider cashing out, which you can do without tax penalty; and if your loss is more than 2% of your adjusted gross income, you can itemize it for a tax deduction. You will be able to reinvest in another 529 after 60 days.