06 Jun Where NJ’s 529 plan ranks on fees

Q. Has New Jersey’s 529 plan gotten any better? I heard it used to have very high fees.
— Saver

A. 529 plans are a great way for a family to save for their children’s or grandchildren’s college educations.

But as is the case with most financial products, not all things are created equal.

It makes sense that all families using a 529 plan to save for college do their due diligence in selecting the 529 plan they will use, said Bryan Smalley, a certified financial planner with RegentAtlantic in Morristown .

The NJ Best 529 College Savings Plan is the direct sold 529 plan offered by the state of New Jersey and is managed by Franklin Templeton.

While it did cut its administrative costs by 50 percent in 2014 from 0.2 percent to 0.1 percent, its all-in-costs — when factoring in the cost of the underlying mutual funds it uses to invest the savings in the plan — are still relatively pricey, Smalley said.

He said the various age-based portfolio options range in cost from 0.41 to 0.91 percent.

Smalley said the plan does have pricing in the range of .09 and 0.17 percent for certain portfolios, but he said these portfolios lack in diversification compared to those of the age-based portfolio options.

“Besides its cost, a few other shortcomings of the NJ Best 529 Plan is the lack of a state income tax deduction for New Jersey residents, its limited exposure to different investment asset classes and its wider age bands in the age-based portfolios,” Smalley said.

He said the age-based issue is important because tighter age bands help to reduce some of the market risk by reducing the stock exposure of a 529 account as the beneficiary draws closer to college age.

“A bright spot of the plan is a potential $1,500 one-time scholarship for NJ 529 plan beneficiaries for their first semester at any New Jersey college or university,” he said, noting the scholarship is subject to participation and contribution requirements.

Smalley said he believes there are better 529 plans to choose from that have “lower costs and superior account features.”

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This post was first published in June 2016.