What Is A 529 Plan
529 plans are qualified tuition plans sponsored by states, state agencies and educational institutions. They were originally designed to help parents save money for college, but tax legislation enacted in 2017 expanded this to include up to $10,000 in annual expenses associated with kindergarten through 12th grade education. So, you can use a 529 plan to save money for private K-12 education as well as college if you want.
S: A Handout To The Upper Middle Class
Who reaps the benefits of these tax breaks? The main beneficiaries are upper-middle-class families. The Government Accountability Office found that in 2010, 47 percent of families with 529 plans had an annual income of over $150,000. 4 The tax benefits associated with 529 plans also skew towards higher-income families, according to the GAO. The median tax savings for families making up to $100,000 was $561, compared to $1,958 for families making between $100,001 and $150,000, and $3,132 for families with incomes over $150,000.
Average Cost Of College In New Jersey
When saving for college in New Jersey, it’s important to take into consideration the cost of attendance in the state. If you choose to go to an out-of-state school, you need to look at the average cost of attendance in that state.
There are 170 colleges and universities in the State of New Jersey.
The total average cost of college in New Jersey for in-state residents is $19,254 for 2022. This includes tuition, room and board, books and supplies, and other expenses.
For just tuition alone, the average undergraduate tuition for in-state residents is $9,054 for 2022. The cost of tuition in New Jersey has been rising at about 2.4% per year.
Explore the data here.
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New Jersey Saving For College Report In 2022
We discuss the tax benefits, trends, dos and donts and various plan options of setting up a 529 college savings plan in New Jersey
As parents, grandparents and students we know college is coming and that were somehow going to have to pay for it someday. Fortunately we have many options available to us including savings bonds, the stock market and 529 plans. Starting a 529 account now is always the best option, no matter how old you is. While playing the stock market may yield higher returns on your investment, placing your money into a 529 plan allows it to grow in a tax free environment. One study even found that when the federal tax benefits were taken into consideration, 529 plans outperformed their benchmarks in every category.
New Jersey has its own state-operated 529 plan called NJ BEST College Savings Plan. It is important to note that your child does not have to go to a NJ college or university in order to use this savings account. 529 plan funds can be used at any accredited college or university across the nation, including some K-12 private schools!
Moving 529 Dollars To A Different State
Thirty-five states offer a tax deduction or credit to their residents for 529 plan contributions. However, moving your 529 dollars to a different state may cause you to lose the tax benefits associated with the plan. For example, Illinois allows only contributions to an Illinois 529 plan of $10,000 and $20,000 to reduce taxable income. Qualified distributions from only an Illinois 529 plan are exempt. On the other hand, in Missouri, residents can contribute up to $8,000 and $16,000 to a Missouri 529 Plan or another states 529 plan and reduce taxable income. Likewise, qualified distributions are exempt whether it is a Missouri or a non-Missouri 529 plan. So, compared to Missouri, Illinois incentivizes its residents to keep dollars in the state and allows higher contributions, whereas Missouri allows more freedom to choose where to put your 529 dollars while still allowing deductions.
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Rollovers From 529 Plans To Able Plans
Account owners can also roll over 529 plan assets into ABLE plan accounts, subject to the annual ABLE plan contribution limit, until December 31, 2025. Rollovers of 529 plan assets into ABLE plan accounts will not be considered taxable events for purposes of New York State taxes. For more details about the Direct Plans tax benefits, refer to the Disclosure Booklet and Tuition Savings Agreement.
*Earnings on nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. New York State tax deductions may be subject to recapture in certain additional circumstances such as rollovers to another states 529 plan, withdrawals used to pay elementary or secondary school tuition, , or qualified education loan repayments as described in the Disclosure Booklet and Tuition Savings Agreement. State tax benefits for non-resident New York taxpayers may vary. Tax and other benefits are contingent on meeting other requirements. Please consult your tax advisor about your particular situation.
***In the event the donor does not survive the 5-year period, a prorated amount will revert back to the donors taxable estate.
- What are the basics of 529s?
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Investment returns are not guaranteed, and you could lose money by investing in the Direct Plan.
© 2022 New Yorks 529 College Savings Program Direct Plan.
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New Jersey 529 Tax Deduction
If you earn less than $200,00 per year, you are eligible for a tax deduction for contributions of up to $10,000. This feature starts in 2022.
But wait thats not the only tax benefit you are allowed as a participant in the New Jersey state sponsored 529 plan! As mentioned, your earnings grow Federal tax-free.
How Much Does New Jerseys Advisor
The Franklin Templeton 529 College Savings plan is known as an advisor-sold 529 plan, which typically carries different types of fees as opposed to its direct-sold counterpart. These are charged for various reasons such as advisor commissions and marketing expenses related to the plan.
The cost of investing in the plan will ultimately depend on your choice of investment option and share class. Options with share class A can levy a maximum initial charge of 5.50%, which is taken out of your contributions.
The rest of the share classes charge contingent deferred sales charges , which typically are levied when you make a withdrawal within a certain time. They can decrease as your balance increases.
Each investment portfolio also charges a total annual asset-based fee that stretches from 0.38% to 0.99%.
As you can see, the fee structure is very specific to your individual preferences. So be sure to speak with your advisor about which investment option best suits your needs and all the fees that apply.
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The Cost Of 529 Plans Is Set To Rise
As 529 plans mature and more families use them to fund college costs, the price tag to the U.S. Treasury will also rise, unless some reforms are undertaken. Over the next decade, the federal government is set to spend almost $30 billion on 529 tax expenditures, according to Treasurys Office of Tax Analysis. Annual costs are projects to be just under $4 billion by 2026.
Free College Tuition For New Jersey Students
New Jerseys Community College Opportunity Grant currently offers residents free tuition for two years at an in-state community college.
The Garden State Guarantee provides free tuition at New Jersey public four-year colleges for third- and fourth-year students. Eligible students must have an annual household income below $65,000. Tuition discounts for higher-income students would phase out on a sliding scale. Individual colleges would determine their own income threshold.
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Plan State Income Tax Benefits
Many states offer incentives to encourage residents to save for college. Studies show that children who have even a small amount saved for college are more likely to attend and graduate. Having a highly educated workforce can help drive economic growth and development in the state.
More than two-thirds of the states offer an income tax benefit for college savings. The majority of states require taxpayers to contribute to their home states 529 plan to qualify for an income tax benefit, but seven states offer a tax incentive for contributions to any 529 plan:
The most common benefit offered is a state income tax deduction for 529 plan contributions. However, Indiana, Utah and Vermont offer a state income tax credit for 529 plan contributions and Minnesota offers a state income tax deduction or tax credit, depending on the taxpayers adjusted gross income.
Tax Benefits Of The Franklin Templeton 529 College Savings Plan
This advisor-sold plan enjoys the same benefits as its direct-sold option, including tax-deferred earnings and tax-free withdrawals on qualified higher education expenses. However, they also have the same tax penalties. Your nonqualified distributions may be subject to federal income tax and a 10% penalty unless you meet certain circumstances. Speak to your financial advisor about how any nonqualified withdrawal may impact you or your beneficiary.
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What Are The Tax Benefits
The tax benefits of 529 plans are similar to those offered by qualified retirement plans like traditional IRAs and 401s. Money held in the account grows tax-free, which can boost the accounts value significantly over the long term. And funds can also be withdrawn tax-free if theyre used to pay for qualified education expenses. These are defined broadly and include tuition and fees, room and board, textbooks, supplies and computers.
Tax Benefits Of 529 Plans
For both types of 529 plans, contributions are not tax-deductible for your federal taxes although some states provide a state tax deduction for contributions. As long as you make withdrawals only to pay for qualified higher education expenses, you won’t pay income tax when you put the money to use. Qualifying expenses typically include books, tuition, mandatory fees, room and board and any necessary equipment.
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How To Select A Good 529 Plan
Before we get into the pros and cons of the New Jersey 529 plan, here is some general guidance about how to pick a good college funding option for a child.
Heres what to look for.
Reasonable fees
Most 529 plans charge an administrative fee for use of the platform. In addition, there are investment options to choose from, each having different fees associated with them. We would urge you to be wary of investments that come with a fee of 1% or higher. Generally, passively managed index funds are lower cost than actively managed mutual funds or Target Date Funds, which adjust over time as the child gets closer to college.
As fees are stated in percentage terms, its useful to do the math and compute the hard dollar amount. For example, 0.75% investment fees may not seem like a big number, but if youve got $50,000 in the plan, youre paying $375 a year just for holding that fund. Look at the actual dollar amount and then assess if there are better options available for less money.
Flexible distribution terms
529 plans differ in terms of what type of educational pursuits the proceeds can fund. Look for flexibility here, as children may wind up going in a different direction than originally imagined.
Tax deductions
Most 529 plans offer a state income tax break in the year you contributed the size of the break varies.
Ease of access
Reasonable contribution limits
New Law Takes Effect To Make College More Affordable In New Jersey
Last year, the Legislature unanimously approved the College Affordability Act. This law has now taken effect, helping to make college education more affordable for New Jersey middle-class families.
Effective January 1, 2022, New Jerseyans can receive tax benefits when they finance a postsecondary degree. Families with a gross income up to $200,000 are now eligible for a State income tax deduction for up to $10,000 for tuition they pay at a New Jersey college or university. The deduction is available each year starting with payments made in calendar year 2022 for the tuition of the taxpayer or the taxpayers spouse or dependent.
Furthermore, the College Affordability Act provides a new state tax deduction starting in 2022, for up to $2,500 in principal and interest paid towards the balance of a New Jersey College Loan to Assist State Students family loan by families with gross incomes up to $200,000.
In addition to these benefits, the Higher Education Student Assistance Authority announced last year the expansion of NJBEST scholarships for eligible college-bound student beneficiaries of a NJBEST account with a history of consistent contributions over multiple years. The amount of this benefit was doubled starting in June 2021, so student beneficiaries of a NJBEST plan can now receive a one-time scholarship of up to $3,000 when they attend a college or university in New Jersey.
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New Jersey 529 College Savings Plans
New Jersey has two 529 savings programs, both managed by Franklin Templeton Investments. One 529 plan is direct-sold and available only to New Jersey residents , and the other is sold nationwide through financial advisors .Click on the links below to read more about each NJ 529 plan.
New Jersey 529 Tax Benefit
Franklin Templeton 529 College Savings Plan
Franklin Templeton 529 College Savings Plan is a traditional NJ 529 plan that allows you to invest money today and reap tax benefits when you withdraw it to pay for qualified education expenses.
Type: Advisor. Please contact a financial advisor in your state for assistance.
Fund Family: Franklin Templeton Advisers, Inc.
Minimums: To get started you can deposit $250, or you can set up an automatic monthly pay plan and open an account with as little as $50. Minimum subsequent contributions are $25 and less with payroll deduction or the automatic plan.
Maximum Contributions: Currently, you can contribute to your New Jersey 529 plan until the aggregate balance reaches $305,000. Of course, your total amount in the plan can be higher as your investments group. 529 plans typically increase the contribution limit over time, so you may be able to contribute more.
Tax Benefits: In and out-of-state participants get the federal tax benefits.
Other Benefits: Students at New Jersey colleges can receive a tax-free scholarship with value that increases along with time and investments in the plan. Also, the first $25,000 in savings will be excluded from the criteria used to determine eligibility for financial aid awarded by the state.
Residency: Franklin Templeton 529 College Savings Plan is open to all United States residents, not just those in New Jersey.
You can learn more about this New Jersey 529 plan at the official website.
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Consequences For Misusing A 529 Plan
To avoid abuse of these plans by trying to set up tax-shelters, states keep a watchful eye and have certain consequences to protect their 529 funds. If someone is caught contributing money to these plans without the intent of using it for education, they risk having their account terminated and open themselves up to extra penalties.
In the end, where you put your money is up to you. Educate yourself on your states rules regarding contributions to a 529 plan and keep in mind many states are similar to Illinois and will only incentivize residents to contribute to their home state. As you begin your journey of saving for education, do your research and contact an Anders advisor below.
How Do I Enroll In New Jerseys 529 College Savings Plan
The easiest way to enroll in the NJBEST 529 College Savings Plan is online. The process should take a few minutes to complete if youve gathered the following details about yourself and your beneficiary.
- Social Security or tax identification numbers
Itll also help to have your banking information, account number and bank routing number, at hand if youre making your $25 minimum opening contribution electronically.
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Which State Plan To Choose
Tax deductions and credits are great, but they may not add up to much if your states 529 plan charges high fees. Be sure to check on the fees for your states plan . Shop around, and compare those fees to those of other states. Other important considerations are investment performance and whether a plan includes investment options, such as target-date funds.
Who Can Open A 529 Plan
A 529 Plan account can be opened by almost anyone, as long as that person is 18 years old and a US resident. It is also not necessary for the account owner to be related to the account beneficiary. These plans are not just a savings tool for parents, they can be opened by grandparents, aunts, uncles, godparents, friends or even the student themselves.
Another key feature of 529 plans is that they are set up to accept third-party contributions, regardless of who owns the account. This means you dont have to open a 529 account to help someone save for college. Anyone can contribute to an existing 529 plan setup for a beneficiary. An added benefit for making a 529 plan contribution is that most states currently offer a state income tax deduction or tax credit. However, in most cases, to get the tax benefit the account must be set up in the taxpayers home states 529 plan.
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