College Savings Plans

College Savings Plans - New Jersey Monthly - Best of NJ

Many graduates flinging mortarboards in the air this month paid for their educations with the help of 529 savings plans. In 1996, federal law authorized these tax-deferred accounts and left it to individual states to manage participants’ funds.

NJBEST, the Garden State’s plan, is managed by Franklin Templeton Investments in Short Hills. “New Jersey is the only state that offers scholarships,” says Roger Michaud, senior vice president of Franklin Templeton. “Beneficiaries can be eligible for a $500 award their first year of school. The scholarship money increases $250 for every two years of participation, up to $1,500.” Eligibility begins after four years of plan participation, with increasingly larger awards based on how long you save. Scholarships are only available to students attending New Jersey schools.  Other perks of the NJBEST plan include federal and state tax waivers on funds applied to qualified expenses. When filing for New Jersey state financial aid, the first $25,000 of participants’ savings is excluded as an asset, allowing students to qualify for more aid. Another plus: If you get into financial trouble, your NJBEST funds are not attachable assets­—not at risk.

But before you sign up, consider this: the Garden State is one of ten states that do not offer an income tax deduction to residents enrolled in their 529 plans.

“New Jersey’s investment returns are low compared to other states. Since [residents] don’t get an income-tax deduction, use another state’s plan. Utah has great returns, it’s nicely diversified, and has low fees,” says James Kearney, chairman of the Financial Planning Association of New Jersey. “None of the plans have uniqueness; look for solid investment performance and low fees.”

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