How to Safeguard College Savings Now

My column on where to stash cash for college generated a flood of questions about state-sponsored 529 college-savings accounts. I'll answer as many as I can this week and next.

My son is a junior in college, and his 529 plan lost more than $1,000 during the first half of this year. It will only get worse this quarter. Should I close out the $5,500 in the account, or should I leave it and risk a total collapse?

If you can use the money to pay your son's college expenses this year, consider doing that.

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If you don't need the money, or if tapping the account would jeopardize other tax breaks for which you might be eligible, you can keep your money in the account but transfer it to a less risky investment.

You're permitted to switch investments once a year. And nearly all 529s offer conservative, interest-bearing options, some of which carry a minimum guaranteed return.

It always makes sense to move your money to more-conservative investments as a child gets closer to college (which, in your case, would have been at least two years ago). But you can still protect what you have.

Savings portability

We live in Florida and have been saving money in the Florida prepaid-tuition plan. There's a chance that we may move to a state that offers a tax break on 529 contributions, so we may end up opening a 529 plan there. But what if we have to move again? Can we transfer to another plan?

Yes, you're permitted to switch from one 529 plan to another. But you probably wouldn't have to. Regardless of where you open your 529, the full value of the account can be used at any accredited college or university in the country.

Prepaid plans can also be transferred to out-of state institutions, although a few plans may make lower payouts to those schools.

Picking a plan

We live in Washington State, where there is no state income tax. We’d like to open 529 accounts for our nieces and nephews, and other family members might like to contribute. How should we get started?

Because there's no tax break for contributing to an in-state plan, you can choose any program you like. (Read about Kiplinger's favorite state plans and find the best state plan for you.)

Open the account directly with the state, which puts more of your money to work than if you bought a broker-sold program that carries a sales charge. Once you've opened the account, other family members and friends can contribute as well.

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.