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Paying for College

As the College Bills Approach, Ratchet Down Risk in a 529 Savings Plan

When your son or daughter enters high school, or even before, start shifting some of the money from aggressive funds into more-conservative ones.

Question: We started saving in a 529 plan for my daughter soon after she was born, putting the money in aggressive stock funds. Now she's a freshman in high school. How should we adjust our investments with college a few years away? We're still adding to the account every month.

Alternatively, she says, you can invest 60% to 70% in a growth portfolio and 30% to 40% in an FDIC-insured savings account within the 529.

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She recommends that you continue to invest new monthly contributions in growth funds, to benefit from dollar-cost averaging. With dollar-cost averaging, when the stock market drops, you can buy more shares for your money -- and then wait for those shares to rise over the years, she says.

If you don’t have to invest in your state's plan to get a tax break, Kiplinger's recommends the Utah Educational Savings Plan for hands-on investors, which offers low-cost Vanguard funds as well as an FDIC-insured bank account. For more information about our favorite 529 plans in several categories, see The Best 529 College-Savings Plans. For more information about each state’s plan, see our state-by-state guide to 529 plans and at SavingforCollege.com.

TAKE OUR QUIZ: How Much Do You Know About 529 College Savings Plans?

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