This was posted last week sometime:
Is Your College Fund Losing
Money? Their Are Options
By LYNN ASINOF
Staff Reporter of THE WALL STREET JOURNAL
When states set up what are known as 529 college-tuition plans back in the roaring '90s, the rules never anticipated anyone would have a loss in these accounts.
Now, however, many people are finding that they actually have less money in these college-savings accounts than the total amount contributed. "Some people have accounts that are down 20% or more from last year," says Joseph F. Hurley, a Pittsford, N.Y., accountant and founder of Savingforcollege.com.
The tendency is to hold on, since college funds are supposed to remain inviolate. But in some cases, Mr. Hurley says, it may actually make economic sense to close out that 529 account, take a tax loss and then immediately deposit the money in a different state program. The tax loss can be used to reduce your income-tax bill for the year. And the college savings will still be able to grow, albeit in a different state plan.
Why a different plan? This eliminates the possibility that you will run afoul of the "wash sale" rule, which bars you from selling a security for a tax loss and then repurchasing that same security within 30 days.
Some caveats: The loss is considered a miscellaneous itemized deduction, which counts only if your miscellaneous deductions total more than 2% of adjusted gross income. Moreover, a very big loss on a college plan could trigger the dreaded alternative minimum tax, in which case the miscellaneous deduction would no longer be deductible. Special care may be needed in closing out a 529 account to prevent running afoul of gift-tax rules when you redeposit the money. And the strategy may work only if you close all 529 plans in the same state for the same beneficiary.
