Re-evaluate progress in your child's 529 account on a yearly basis.

Review Your 529 Plan to Meet College Savings Goals

Parents should follow these steps annually, since financial and family circumstances may change.

Re-evaluate progress in your child's 529 account on a yearly basis.
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Parents participating in a 529 plan, a college investment account with tax benefits, need to assess progress on meeting college savings needs on an annual basis, experts say. Investments may exceed or fall behind the growth that families were expecting, and the ability to make contributions may also change. 

Two certified public accountants, Clare Levison and Michael Goodman, advise following these four steps to review your 529 plan's progress. 

[Understand the basics of 529 plans.] 

1. Define goals: "Parents should have clear goals of what they are able to provide in educational assistance," Levison says. The goal may be to pay for in-state schools or 50 percent of their child's education, she says. The amount of monthly contributions needed to fund this goal could change because of investment growth. 

For instance, if parents are fortunate enough to see their investment value increase by $1,000 more than what they originally expected, transferring those funds from stock-based investments into a savings account—a safer choice—reduces contribution needs in the future. If the parents have five years left until their teen starts college, having $1,000 in guaranteed college funding reduces the amount needed in monthly contributions by around $17. 

Parents calculating what they'll be able to pay for should also keep in mind potential increases to tuition over time, Levison notes. 

[See three myths about prepaid college tuition plans.] 

2. Adjust contributions based on affordability: Since funding availability changes each year, it's important to define savings goals based on current finances, Levison says. Parents who start saving when their children are newborns won't earn the same annual income 18 years in a row. 

They may earn raises and bonuses, but there may also be periods when they're unemployed or decide to put 529 plan contributions on hold until debt, such as from credit cards, is paid off, Levison says. 

For instance, consider if a parent who's currently contributing $50 per month receives a pay increase of $200 per month after taxes, totaling $2,400 for the year. He or she may have also had a recent medical emergency that cost $1,000 and depleted emergency savings. After refilling the emergency savings account with $1,000, the parent would still have an extra $1,400 that year to deposit into a 529 plan. 

Conversely, if the parent didn't receive a bump in pay, it's possible he or she might have had to reduce 529 plan contributions by $1,000 that year to make up the difference. 

3. Adjust investments for safety: During your annual assessment for meeting goals, it's important to review investment choices and determine their safety. 

If you saved better than you thought you would, you may want to move more of your investments to savings or money market accounts to protect a percentage of your investments, Levison says. "Safety of principal is sometimes more important than potential rate of return," she notes. 

[Consider three of the safest investments within 529 plans.] 

4. Adjust investments based on economic changes: Consider rebalancing investments based on market movements, advises Goodman, a personal financial specialist. For instance, in a weaker economy, parents may want to take some money out of safer investments such as savings accounts and money markets and gear investments more toward mutual funds, he notes. The goal is always to buy at low prices and sell at higher ones, Goodman says. 

However, Levison adds that parents should carefully consider the percentage of funds moved away from savings. Everyone's risk tolerance is different, she says, and families should consult their local CPA, financial adviser, or 529 plan manager when considering significant plan changes.

Reyna Gobel, frequently quoted as an expert on student loans and college costs, is the author of "Graduation Debt: How To Manage Student Loans And Live Your Life" and "How Smart Students Pay for School: The Best Way to Save for College, Get the Right Loans, and Repay Debt." She has appeared on PBS's Nightly Business Report and speaks regularly at CollegeWeekLive.