updated 10/24/2008 6:53:57 PM ET 2008-10-24T22:53:57

There's $30,000 sitting in Ellen Anthony's 529 college savings plan. But she's not touching any of it to pay for her daughter's freshman year this fall.

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"I'm not interested in taking a loss," said Anthony, a 42-year-old registered nurse who's working overtime instead to pay tuition.

Even though her daughter's 529 plan is age-based — meaning its mix of investments is designed to grow more conservative as enrollment nears — the plan's value is 6 percent less than her total contributions. So Anthony, a single mother in South Weber, Utah, decided to postpone taking distributions, in hopes the portfolio will recover for her daughter's final years in school.

Her daughter, Jillian, also picked Stonehill College in Massachusetts, which offered generous financial aid, and enrolled in a work-study program.

As the volatile market chips away at 529 portfolios, some families are learning age-based plans vary in asset mix, with some more heavily invested in stocks than others.

A 529 plan lets families set aside money for college, including tuition, fees, books and room and board. Distributions are tax-free. Each state offers its own menu of portfolios. You can buy into any state's plan, but there are usually tax benefits to picking one from home.

Age-based plans typically spread assets over a mix of stocks, bonds and short-term investments or money market accounts. As the child grows older, the plan automatically shifts a larger percentage of the funds out of stocks into more stable investments that bear less risk.

Anthony's Utah plan, for example, moved from a 20 percent to a 15 percent exposure to stocks in the final years before her daughter enrolled in college. One reason her plan's value is worth less than her contributions is that she only opened the account a few years ago.

There are a range of options for a student four years away from college. Plans offered by T. Rowe Price keep 40 percent of assets in equities, while one plan at Vanguard for a child the same age has 25 percent in stocks.'

If you're worried about your plan's exposure to the market, here are some points to keep in mind.

Shift gears
One option for people whose plan took a big hit: hold off on taking distributions until the child's final years in school. That may give the portfolio time to recover, said Joe Hurley, publisher of SavingforCollege.com. Others are shifting plans intended for their older children to younger siblings. This means your child may have to take out loans or seek out additional scholarships to cover costs in the meantime.

If your child is still a few years away from enrollment but you're anxious about your plan's exposure to the market, another option is to shift into a more conservative gear, said Christine Fahlund, senior financial planner for T. Rowe Price.

For instance, you could switch to a mix designed for students already enrolled in college (which has 20 percent in stocks at T. Rowe Price). Such a move may mean you lose out on any recovery the market might make in the meantime.

To prevent people from reacting to the market's day-to-day fluctuations, the IRS only permits people to make changes to their 529 plans once a year.

Even with Wall Street's wild swings, however, T. Rowe Price says it isn't seeing spikes in the number of people asking for a change in their asset mixes. Vanguard also says less than 4 percent of investors have asked for a change this year.

Get the right mix
Because the asset allocation of age-based plans can vary significantly, be sure to check what percentage of the portfolio is in stocks, said John Heywood, who heads the 529 plan business at Vanguard.

"That's the key ingredient," he said.

Vanguard classifies its portfolios as "conservative," "moderate" or "aggressive," with the asset mix for each adjusted depending on a child's age. The conservative option for a 14-year-old has no exposure to stocks, for instance, while the aggressive option is 50 percent in stocks.

At Fidelity, the allocation is based on age, with the share in stocks gliding from 88 percent for a baby to 20 percent when the child is heading to college at age 18.

Staying at least partially invested in stocks even after enrollment helps keep pace with soaring costs, said Fahlund.

"(The costs are) more than people could support if they were invested in all bonds," she said.

Last year, tuition and fees at a four-year public university was $6,185, up 6.6 percent from the previous year.

At four-year private colleges, tuition and fees rose 6.3 percent to $23,712 according to the College Board.

There are a couple other factors to keep in mind when deciding how aggressive you want to be.

If you're relying primarily on your 529 plan to pay for college, for instance, you'll probably want to be more conservative, Heywood said. That's especially true if you started saving just a few years before your child is set to enroll as a freshman.

Do it yourself
Age-based plans account for about two-thirds of the assets in 529 plans, according to the College Savings Foundation, which tracks about 40 percent of the estimated $110 billion industry.

Age-based plans aren't your only option.

There are also static portfolios, which have a fixed asset mix through the duration of the plan. One static portfolio at John Hancock, for example, invests entirely in short-term bonds while another seeks long-term gains by investing in a broad range of mutual funds focused on equity markets.

Another option is an individual portfolio that invests in a single mutual fund.

As with any funds, remember there are inherent risks with 529 plans. So even if a plan is age-based, there's no guarantee you'll have a set dollar amount by the time your child is ready for college. That doesn't mean 529s aren't a good option.

Even if your 529 plan is taking a beating, people shouldn't lose sight of the greater benefits the plans bring, said Stuart Ritter, a certified financial planner at T. Rowe Price. He noted that 529 plans come with considerable tax benefits.

There's still plenty of time for the market to bounce back too, if your children are relatively young.

"It's like stopping the game in the 5th inning," Ritter said.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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