The Wall Street Journal reports on a way you may be able to deduct these losses. But be forwarned: there are many caveats, especially if your state offered up front tax benefits for your contributions. And if you child isn’t going to school in the next year or two, do you really want to withdraw funds from your 529 account with stock prices are this low?

Here’s the explanation, in part:

Imagine a couple that put $120,000 into a 529 tax shelter for a grandchild a year ago. If the market had continued to boom, that money would have grown tax-free. As long as it was eventually spent on qualified tuition expenses, no tax would have been paid on withdrawals. These 529 plans are terrific tax shelters for middle-class couples with children or grandchildren.

Obviously, though, investing has been a hazardous occupation of late. Imagine that same couple now looks at the 529 and realizes those investments have plunged to just $70,000 in value.

Yikes. That’s a $50,000 loss.

The couple can close the account and withdraw the money. At that point, they may be able to deduct nearly all of that loss from their taxable income. That wouldn’t restore all the money lost, but could at least soften the blow.

Many Americans may be missing out on this deduction. Most 529 plans are sold through financial advisors, but comparatively few know about this rule. (For those seeking more details, they can be found in IRS Publication 970, Tax Benefits for Education, page 51, and in the Federal Register, Vol. 73, No. 13, page 3445.)

Blame sagging investment returns and rising college costs.

The cost of a lump-sum contract to lock in four years of tuition at a state-supported college or university for the parents of a kindergartner will increase from $39,944 last year to $44,060 during the new enrollment period, which runs from Dec. 1 to Feb. 28. In comparison, the state raised prices 7 percent last year and 8 percent two years ago.

The 10.3 percent increase this year is in part to shore up the program’s reserve, which fell below its 10-percent standard to 9.2 percent.

You can learn more about the Nebraska State Farm College Savings Plan here.

This is a dumb move. Why you would contribute funds when the Dow was at 14,000 and not when it’s at 9,000 is beyond me.

But you need to be smart about it. If your kid is going to college in less than 5 years, most of your money should be in low risk investment options. Most 529 plans offer age-based plans that keep more of your money in less risky options such as bonds when your child gets closer to college.

Also keep in mind that your kid will be in college for about 4 years. So if your kid starts college in 5 years, the average time you have to keep your money in your 529 plan is another 7 years. 7 years is a long time in the stock market. After all, the stock market is currently at 5 year lows. It has gone up and dropped back down in a period of just 5 years.

If your state offers upfront tax deductions for contributing to 529 plans, then you have all the more reason to contribute. Scared about investing in stocks? Then just buy the low risk options in the 529 plan. They may only return 1-3% per year, but if you get an upfront tax deduction you’ll be laughing all the way to the bank.

FreshmanFund.com is offering up to 100 people a $5 gift certificate to FreshmanFund. You can transfer this to your 529 plan.

For details on how to get your certificate, visit:

http://529s.com/freshman-fund-gift-certificate.html

Here’s a link to the article.

Wisconsin just released a number of new options for its Edvest 529 plan, including a number of less-risky options. According to a release from the state and Wells Fargo:

“The financial market’s recent volatility shouldn’t discourage families from investing in their child’s college savings plan,” said Wisconsin State Treasurer Dawn Marie Sass. “These new EdVest choices offer Wisconsin families three new conservative options, including portfolios that primarily invest in certificates of deposit that are federally insured by either the FDIC or NCUA. Combined with our existing money market portfolio and bond portfolios, EdVest offers a variety of options to meet the needs of conservative investors.”

No one is happy about the global stock market crash. But that doesn’t mean you should stop contributing to 529 plans. Think about it this way. You may have “bought” the stock market at 14,000, and 13,000 and 12,000 and 11,000. Now that it’s cheaper, should you stop buying it? One of the nice things about 529 plans is they let you set up a regularly monthly contribution. If you stick to your plan, that means you buy into the market every month. This allows you to dollar cost average your investments.

Although my time horizon is long, you need to evaluate your strategy if your kid is going to college soon. Many 529 plans offer time horizon funds which automatically switch some of your money into bonds and less risky investments when your kid gets closer to college. That way a sudden crash in the market, like what we’ve seen lately, won’t keep you from being able to pay for college.

Unless you think the market will continue on a downward trajectory from now until when your kid goes to college, it probably makes sense to stick to your plan and keep investing on a regular basis.

(Salt Lake City) UESP continues to focus on the child by dropping fees and expanding investment options in conjunction with “National College Savings Month.” More money in their account now means more money for higher education later.

“It just got cheaper to save for college. Low costs and well-run underlying funds are important to investors when deciding how to save for a child’s higher education,” said Lynne Ward, Director of UESP. “The fee reduction and new investment option assist account owners, beneficiaries and UESP move closer to the shared goal of children receiving a higher education.”

“UESP makes it easy and affordable for Utah families to save for college. The Utah state tax credit and reduced fees provide an even greater incentive to start planning for your children’s future,” said Bill Sederburg, Commissioner of Higher Education.

Fee Reduction

Underscoring its already low-cost reputation, UESP is reducing fees again, providing individuals an opportunity to put more money toward future college expenses. The Administrative Asset Fee will be reduced 12%, and the Administrative Maintenance Fee is being lowered 25% on all investment options effective October 1, 2008.

The total range of Asset Fees on any UESP investment option will be 0.22% to 0.34%, which includes the Vanguard underlying expense ratios. The fee is assessed quarterly, on the last day of each quarter.

The Administrative Maintenance Fee will fall from $20 down to $15 annually. That is only $3.75 per quarter for accounts with $5,000 or more. Accounts with less than $5,000 are charged only 0.075% of the balance each quarter. The fee is assessed on the last day of each quarter.

Utah residents who invest in Option 1—Utah Public Treasurer’s Investment Fund are assessed no fees when saving for a child’s higher education. Additionally, the Administrative Maintenance Fee is waived for all Utah residents, regardless of investment option.

New Investment Option

A new static investment option with more exposure to international equity funds will be available to account owners October 1, 2008. This option results in the highest allocation in international securities of any current UESP product:

* 70% in the Vanguard Institutional Total Stock Market Index Fund (VITSX)
* 30% in the Vanguard Institutional Developed Markets Index Fund (VIDMX)

This new investment option (Option 10 Equities—30% International) will provide investors with greater access to the world market and growing regional economies.

The Vanguard Institutional Total Stock Market Index Fund seeks to track the performance of the MSCI U.S. Broad Market Index. The fund typically holds 1,200 to 1,300 stocks in its target index (95% of the U.S. Broad Market Index) and a representative sample of the remaining stocks.

The Vanguard Institutional Developed Markets Index Fund seeks to track the performance of the MSCI Europe, Australasia, Far East Index by investing all, or substantially all, of its assets between the Vanguard European Stock Index Fund and the Vanguard Pacific Stock Index Fund, based on the market capitalizations of European and Pacific stocks in the Index.

Visit www.vanguard.com to learn more about these underlying funds.

To learn more about the Utah Educational Savings Plan, call 800.418.2551 or visit www.uesp.org.