529 plans make it easier than ever to ensure your child has funds available when the time for college comes. New Jersey offers its own 529 plan for in-state residents, but is the NJBEST really the best option for your family? Our detailed look at the NJBEST 529 plan reveals just how user-friendly this plan is and provides insight into all aspects of this popular college saving option. You’ll be able to tell right away if the NJ 529 plan is the right one for your family once you understand the options, fees, usability and potential tax deductions available to you.
THE VERDICT: The NJ 529 plan could be right for you if you are sure you will attend an in-state school. Otherwise, high, restrictive fees make an out of state plan more appealing. The New Jersey 529 plan has high fees and no additional tax benefits, but it does offer scholarship opportunities for those attending New Jersey schools. This results in a more complex than usual decision-making process – does the scholarship truly offset the high cost of investing? CollegeBacker can help you evaluate your options and learn if the NJBEST plan is right for your unique situation.
WHAT YOU NEED TO KNOW:
- Our Focus: This piece takes a comprehensive look at the NJ 529 Plan, NJBEST to determine if this in-state plan is right for New Jersey residents.
- Fees: Expense ratios for the NJ 529 range from 0.45-0.89%, which is up to 4x more expensive than best-in-class 529s.
- Taxes: There is no special state tax treatment or benefit to choosing the NJ 529 plan, so it is worth shopping around to find the best possible plan for your family.
- Usability: Basic. The official New Jersey 529 site is relatively easy to use, but sending gifts to family and friends or finding details on fees can be challenging.
- Financial Aid: If you attend school in the state, there is additional financial aid available for NJBEST 529 plan owners, provided you invest for at least four years. This could offset the high fees in some situations. If you will attend school outside of the state, then there are no benefits to choosing the New Jersey based plan.
OUR DETAILED REVIEW OF THE NEW JERSEY 529 PLAN (NJBEST):
1) Our Focus
Our review takes an in-depth look at the state of New Jersey’s 529 plan options. New Jersey has two different options for 529 savings. One is only for state residents, while the other is available to anyone wishing to join. Both types offer tax advantages and are designed specifically for college and education spending.
The NJBEST 529 plan is only open to New Jersey residents, while the New Jersey Franklin Templeton 529 college plan is open to residents in any location; both plans have similar fees and benefits. We’re looking at the NJBEST plan to see if this option is right for those living in the state.
The whole idea behind saving for college with a 529 plan is to save for the future. Discovering all the costs involved with any plan you are considering can help you make the most of your investment and keep more of the funds you’ve invested in your child’s future.
Most 529 plans charge AUM, or Assets Under Management fees. These fees are a percentage of the total amount in your fund and, so the fee in dollars increases as your account grows. The best-in-class 529 plans charge about 0.20%.
For New Jersey residents using the NJBEST plan, annual fees range from 0.45% and 0.89%, with most options hovering around 0.80%. This is more than 4x higher than the fees charged by best-in-class plans.
What does this fee breakdown mean for your NJ 529 plan and college savings? Here’s how it breaks down for a typical family:
This year, you saved $1,000 for your child’s NJBEST 529 account, so your AUM fees would be only $4.50 to $8.90. By the time 18 years have passed, you'll pay a total of $81 to $160 on that initial investment – not to mention additional fees as your account grows or you contribute more over time.
In contrast, that same $1,000 investment placed in a best-in-class 529 plan at 0.20% in fees would result in $2.00 in fees the first year. As time passed and you continued saving at the same level, your annual fees for a best-in-class plan would be only about $36, saving you anywhere from $45 to $124 over the fees you’d spend on the NJBEST plan.
It may seem like small change now, but as your account grows, AUM fees take a bigger bite each year, and that money could be better spent on textbooks and tuition for college.
One of the biggest reason to use a 529 plan is to take advantage of the tax benefits. Your post-tax contributions will grow tax-free in your 529 plan and when you are ready to withdraw, your savings are not taxed, provided you use the proceeds for college and qualified expenses.
New Jersey does not offer any special state tax deduction or benefit for those using the in-state 529 plan, just the standard tax benefits any 529 plan already offers. In other words, any 529 plan will work for you if you live in New Jersey.
The NJBEST 529 plan is easy to enroll in online, with an initial contribution of as little as $25 required to get set up. Once you are enrolled, the online portal has average usability; you can access your account and check balances without difficulty.
A 529 plan that allows your friends and family to conveniently contribute to your child’s education makes it easy for them to give the gift of college to your kids. Instead of buying a plastic or electronic toy, your family members can contribute to your 529 plan instead. Sending gifts is not particularly easy for NJ 529 plan users, though.
While gifting is available, it needs to be done manually and the process to add funds to your child’s 529 plan is not particularly intuitive. Those wishing to gift funds need to download a form, complete it and send it in with a paper check; there is no option for adding electronic or instant funds.
5) Financial Aid
New Jersey residents need to use the Free Application for Federal Student Aid (FAFSA) to determine how much financial aid each student will receive. When your Expected Family Contribution (EFC) is calculated, your 529 plan will be included as an asset and will have a small impact on the amount of financial aid awarded. This can be minimized by ensuring the parent is the owner of the NJ 529 account.
In addition to FAFSA, New Jersey offers a financial aid award specifically designed for those investing in a NJBEST 529 plan and who attend a New Jersey college. After investing for four years, a grant of $500 is awarded to the college bound student to offset costs in their freshman year. The amount of the NJBEST scholarship depends on the length of time the fund is open and the total amount invested. Scholarships range from $500 to $1,500 and can be applied for online.
New Jersey residents face a complex choice when it comes to opting for the in-state plan, thanks to the financial aid offered for long term investors. Visit CollegeBacker.com for personalized guidance or view the official NJBEST website for more information about this specific 529 plan.