College Savings and 529 Plans: A Guide for New Jersey Families

The cost of a four-year college education continues to rise, with many private institutions now exceeding $80,000 per year when you factor in tuition, room, board, and fees. Even in-state public universities in New Jersey run $25,000 to $35,000 annually. Starting early and using tax-advantaged vehicles like 529 plans can meaningfully reduce the financial burden when the tuition bills arrive.

How 529 Plans Work

A 529 plan is a tax-advantaged savings account designed for education expenses. Contributions grow tax-free at the federal level, and withdrawals are also tax-free when used for qualified expenses including tuition, room and board, books, computers, and up to $10,000 per year in K-12 tuition. New Jersey offers a state income tax deduction for contributions to the NJBEST 529 plan: up to $10,000 per taxpayer per year.

Choosing the Right Plan

You are not limited to your state's plan. While the NJ tax deduction makes the NJBEST plan attractive for state residents, other state plans may offer lower fees or better investment options. Compare expense ratios, fund choices, and any minimum contribution requirements. Many families use the NJBEST plan for the state deduction and a second plan if they want access to different investment managers.

Common Mistakes to Avoid

• Investing too conservatively for young children — with 15+ years to grow, equity-heavy allocations generally make sense early on
• Forgetting to update the investment mix as college approaches — shift toward more conservative options in the final 3-5 years
• Overfunding one child's account without considering how excess funds can be redirected to siblings or even the account owner
• Not accounting for scholarships or financial aid — excess 529 withdrawals for non-qualified expenses face income tax and a 10% penalty on earnings

New Flexibility Under SECURE 2.0

Starting in 2024, beneficiaries of 529 plans that have been open for at least 15 years can roll unused funds into a Roth IRA, up to $35,000 over their lifetime. This removes one of the biggest concerns parents had about overfunding a 529. It is one more reason to start saving early, even if you are uncertain about the exact cost or whether your child will attend college.