[NJ resident - does it make sense to use 529]

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dazzwater
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Joined: Thu Apr 16, 2020 11:47 pm

[NJ resident - does it make sense to use 529]

Post by dazzwater » Thu Apr 16, 2020 11:50 pm

newbie question: if the NJ plan does not allow tax deductions, why would anyone use them? Isn't that the whole point of 529 accounts?

mega317
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Re: [NJ resident - does it make sense to use 529]

Post by mega317 » Fri Apr 17, 2020 2:57 am

You also get tax-free growth and tax-free distributions if used for qualifying expenses.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

lakpr
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Re: [NJ resident - does it make sense to use 529]

Post by lakpr » Fri Apr 17, 2020 6:21 am

Fellow NJ resident here. It is not quite true you won’t get any benefit. If you deposit a minimum of $3600 per beneficiary, and let it remain in the plan for a min of 4 years, AND your beneficiary attends an in-state college, you get a $1200 benefit from the state towards tuition.

So deposit just that minimum amount in the state plan, it is a 30% guaranteed return in 4 years. Beyond that amount, invest in the New York plan.

https://www.hesaa.org/Pages/NJBESTScholarship.aspx

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RootSki
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Re: [NJ resident - does it make sense to use 529]

Post by RootSki » Fri Apr 17, 2020 7:38 am

The NJ plans suck with high fees. We are using the NH 529 plan at Fidelity.

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grabiner
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Re: [NJ resident - does it make sense to use 529]

Post by grabiner » Fri Apr 17, 2020 9:08 pm

If your state doesn't offer a tax benefit, there is no reason to use your own state's 529; pick a plan from any state that satisfies your investment needs.
lakpr wrote:
Fri Apr 17, 2020 6:21 am
Fellow NJ resident here. It is not quite true you won’t get any benefit. If you deposit a minimum of $3600 per beneficiary, and let it remain in the plan for a min of 4 years, AND your beneficiary attends an in-state college, you get a $1200 benefit from the state towards tuition.

So deposit just that minimum amount in the state plan, it is a 30% guaranteed return in 4 years. Beyond that amount, invest in the New York plan.

https://www.hesaa.org/Pages/NJBESTScholarship.aspx
You don't have the numbers quite right. If you deposit $1200 for four years, you get a $500 scholarship; for every additional $600 and two years, you get another $250, to a maximum of $1500 if you deposit $3600 for twelve years. So that is a 42% extra return, which is an extra 3% annually for a 12-year investment, but only if your child attends a school in NJ. (Another benefit is that $25,000 of the 529 plan is ignored for the purpose of financial aid from the state of NJ; this might slightly increase the scholarship you can get at Rutgers, but it won't make a difference if your child goes to a private school.)

But that's still worth doing; you can put the money in the S&P Index portfolio with 0.14% expenses, and if you don't want everything in the S&P index, hold your bonds and foreign stock in lower-cost funds in a non-NJ plan.
Wiki David Grabiner

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