New Jersey sponsors a direct-sold and an advisor-sold 529 college savings plan. The direct-sold NJBEST 529 College Savings Plan allows you to open an account with as little as a $25 deposit, and its investment menu contains a few options with very low fees. The other option, the Franklin Templeton 529 College Savings Plan, provides a vast investment menu as well as the guidance of a financial advisor. On the downside, neither plan allows account holders to make any tax-deductible contributions, which is rare among plans sponsored by states that levy state income tax. However, both plans allow the first $25,000 in the account balance to be excluded from evaluating the beneficiary's eligibility for financial aid awarded by the state of New Jersey.
|Plan Name||Program Type||How to Enroll||Fees|
|NJBEST New Jersey’s 529 College Savings Plan Read Review||College Savings Plan||Direct-Sold||0.14% - 0.89%.|
|Franklin Templeton 529 College Savings Plan Read Review||College Savings Plan||Advisor-Sold||0.34% - 2.21%|
NJBEST New Jersey’s 529 College Savings Plan
New Jersey’s direct-sold 529 college savings plan helps families invest in their children’s future education by starting out with as little as a $25 deposit. In total, they can contribute a maximum of $305,000. The plan allows New Jersey residents to invest in several investment portfolios designed to meet different risk levels and investment knowledge. New Jersey account holders with children who eventually enroll in a New Jersey college or university are currently eligible for a tax-free scholarship worth up to $1,500.
How Do I Enroll in New Jersey’s 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 you’ve gathered the following details about yourself and your beneficiary.
- Social Security or tax identification numbers
It’ll also help to have your banking information at hand if you’re making your $25 minimum opening contribution electronically.
How Much Does New Jersey’s 529 Plan Cost?
Each portfolio in the NJBEST 529 College Savings plan charges a total annual asset-based fee that currently ranges from 0.14% to 0.89%. It is not paid directly out of your pocket, but rather factored out of operating expenses associated with your portfolio option. So your account bears a prorated share. Nonetheless, the fees for this plan range from very low to moderately high compared to investment options in plans that other states sponsor.
Tax Benefits of the NJBEST 529 College Savings Plan
When you invest in any 529 college savings plan, the earnings your contributions make in the market grow tax-deferred. This means they won’t be taxed as long as they remain invested. This perk allows your money to make the most out of compound interest—when your interest gains interest. In addition, your withdrawals will also be tax-free as long as you use that money to fund qualified higher education expenses such as tuition.
But despite all the tax advantages the direct-sold New Jersey’s 529 college savings plan offers, you may face some penalties for not using your savings for their intended use. If you take money out for anything other than a qualified higher education expense, you’ve made a nonqualified withdrawal. The earnings portion of the withdrawal may be subject to federal income tax as well as a 10% penalty and state income tax at your bracket. Seek a qualified local tax advisor to discuss how a nonqualified withdrawal may affect your unique tax situation.
What Are My Investment Options?
The NJBEST 529 College Savings Plan offers a variety of investment portfolios designed for all types of savers, from people new to investing to trading experts. Those who aren’t too familiar with investing may be interested in age-based portfolios. These options automatically rebalance their asset allocation or the mix of stock and bond funds they invest in over time. When your beneficiary is young, the portfolio will aim for strong returns by investing more in stock funds, which are generally more risky but growth-oriented. As your child gets closer to the college years, however, the portfolio will change gears and focus more on generally less risky options like bond and money market funds in order to protect what you’ve earned and still aim for a steady return on your contributions.
All age-based portfolios follow this general trend. However, you can choose from three different tracks based on your risk profile: conservative, moderate and growth. Each one sticks to its risk aim. For example, the conservative option will invest in no stock funds by the time your beneficiary reaches age 17. However, its growth track counterpart would still devote 24% of its asset allocation to stock funds.
But if you have a general understanding of the type of asset mix you want to invest in, you may be interested in the plan’s individual portfolios. The asset mix of these portfolios is meant to stay constant over time. Each invests in different funds based on a specific risk level.
Affiliates of Franklin Mutual Advisers, a division of the established financial services firm Franklin Templeton, manage most underlying funds in the plan’s portfolios.
How Do I Withdraw Money from New Jersey’s 529 Plan?
You can request a withdrawal online, by phone or in writing.
How Can I Save More With New Jersey’s 529 Plan?
NJBEST's beneficiaries who eventually enroll in a New Jersey college or university may be eligible for a scholarship worth up to $1,500 depending on the amount of above-minimum contributions their account holders make.
After a beneficiary qualifies for a $500 scholarship, the award will increase by $250 every two years up to a $1,500 maximum, which you can use to fund the student’s first year in the event he or she gets accepted to and enrolls at a New Jersey higher education institution.
In addition, the first $25,000 in savings won’t be factored into the formula the state of New Jersey applies to factor in your child’s eligibility for financial aid.
The NJBEST 529 plan also facilitates the process of requesting monetary donations toward the 529 plan in the form of gifts from friends and family. With the personal crowdfunding tool Spryng, you can create an online profile for your 529 plan and share the link across social media and email. The plan also allows you to print customized requests for gifts during special occasions such as birthdays. Friends and family can send personal checks, cashier’s checks and bank money orders for a minimum of $25 directly to your 529 plan account.
Franklin Templeton 529 College Savings Plan
With the help of a financial advisor, you can invest in a variety of portfolios offered by the Franklin Templeton 529 College Savings Plan based on your unique risk tolerance and financial goals. It enjoys the same tax benefits as the direct-sold option as well as opportunities for scholarships and financial aid.
How Do I Enroll in The Franklin Templeton 529 College Savings Plan
You can find a financial advisor to enroll in the Franklin Templeton 529 College Savings Plan. But before you decide to work with a professional, be sure to ask your advisor questions. Examine his or her qualifications and certifications, which can mean the advisor is held to different standards than others. A Registered Investment Advisor (RIA), for example, is governed by the federal Securities and Exchange Commission. RIAs are also held to a fiduciary standard, which means they are legally obligated to work in your best interests.
How Much Does New Jersey’s Advisor-Sold 529 Plan Cost?
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 charge a maximum initial size charge of 5.75% which is taken out of your contributions. The rest of the share classes charge contingent deferred sales charges (CDFS), 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 which stretches from 0.34% to 2.21%.
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.
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 non-qualified withdrawal may impact you or your beneficiary.
What Are My Investment Options?
A financial advisor can customize your investment options with one or more individual portfolios based on your unique financial needs and risk profile. You can also invest in age-based options that automatically change their asset mix to become more conservative as your child gets closer to college age.
If you have a general idea of how you want to break down your portfolio’s asset allocation, you can choose from objective-based portfolios, which invest in different underlying funds that offer exposure to several asset-classes based on a particular risk appetite and objective.
How Do I Withdraw Money from New Jersey’s Advisor-Sold 529 Plan?
You can request a withdrawl online, in writing or by phone. Before doing so, you should consult your advisor in order to make withdrawals without unwittingly triggering a tax penalty or a nonqualified expesne. If you’re not sure how to find one, you can use our SmartAdvisor tool. It asks you some simple questions in order to connect you with financial advisors in your area. We cull through thousands of advisors to pair you with three who would best meet your needs. You can look at their profiles to learn more about them, interview them on the phone or in person and choose which to work with in the future. This allows you to find the right fit while SmartAsset does most of the hard work for you.