06 Feb Will N.J. ever allow deductions for 529 plans?

Q. Will New Jersey ever allow deductions for 529 plan contributions?
— Saving

A. It’s a great question, but at this point, your guess is as good as anyone’s.

It’s impossible to know what will take priority in Trenton and eventually be made into law.

For that reason, it makes sense to make your plans using the best information we have today.

So let’s look at 529 plans.

They were created in 1996 under the Small Business Job Protection Act to aid families in funding higher education needs, said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield.

He said while contributions are made from after-tax money – no deductions – the earnings on the 529 account accumulate tax-deferred. This accumulation of tax-deferred earnings, if used for qualified educational expenses, can be withdrawn tax- and penalty-free.

If you decide to use a 529 plan to save for college, most people start by looked at the plan offered by their home state. That’s because some states do offer deductions and other benefits.

New Jersey’s plan doesn’t offer much.

The plan, NJBEST, is offered through Franklin Templeton.

“As of January 2019 there are no tax deduction benefits when making a contribution to a 529 plan in New Jersey, however you do have the ability to take advantage of up to a $1,500 maximum scholarship by investing within the program for over 12 years.”

This scholarship is only available if the 529 beneficiary attends a New Jersey college, Gobo said.

But based on 529 plan rankings with Morningstar, Gobo said, it appears that other state plans may be more beneficial.

Morningstar rates plans on the following pillars: Process (Investment Strategy), Performance, People (The manager & length of service), Parent (Rating of the underlying investment company), Price (fees on the plan.)

“When reviewing ratings in each of these categories, New Jersey is rated very low while states like Illinois or Virginia are some of the highest rated,” Gobo said.

Make sure to consider plan fees before you choose a 529. Whatever you pay will eat into your profits over the course of your saving years.

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