529 Plan Options - NJ or NY?

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JBax
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529 Plan Options - NJ or NY?

Post by JBax »

Hello!

I wanted to open a 529 for my toddler. I am not sure if it is better to open a NJ account (I am resident) or a NY account (has Vanguard options).

NJ 529:
- seems to have 10k state deduction
- plan users Franklin Templeton and has higher fees and limited funds (the SP500 fund looks to be 0.54)
- has a 10k limit per year for beneficiary to spend for K-12; does not apply for college costs (same as NY)
- allows all colleges outside of state and some abroad (same as NY)

NJ Links:
NY 529:
- no deductions
- has Vanguard funds
- has a charge of 0.12% for all plans (maybe choose plans Mid-Cap Stock Index Portfolio or the Aggressive Growth Portfolio plan?). If you suggest the NY plan, which fund would you choose?

NY Links:
Appreciate any advice to help decide if the NJ or NY 529 would be better. If NY, which fund would you choose? Thanks in advance!
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dogagility
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Re: 529 Plan Options - NJ or NY?

Post by dogagility »

It appears there are index funds in NJ available too. https://www.njbest.com/njbest/products/ ... nt-options

I vote for getting the NJ state tax deduction and investing in the NJ 529 index funds.
The more flexibility you have the less you need to know what happens next. -- Morgan Housel
dukeblue219
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Re: 529 Plan Options - NJ or NY?

Post by dukeblue219 »

Get the tax deduction! If you hate the investment options you can rollover to another state once per year. Check with NJ that you don't lose the deduction by doing that though.

Edit - wait are you sure NJ has a deduction for 529 contributions?
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anon_investor
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Re: 529 Plan Options - NJ or NY?

Post by anon_investor »

dukeblue219 wrote: Sat Jan 01, 2022 7:27 am Edit - wait are you sure NJ has a deduction for 529 contributions?
It looks like they are now.
https://www.njbest.com/njbest/resources/faqs
What are the New Jersey state tax benefits?
New Jersey taxpayers, with a gross income of $200,000 or less, may qualify for a state income tax deduction for contributions into an NJBEST plan of up to $10,000 per taxpayer, per year, beginning with contributions made in tax year 2022.
veggivet
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Re: 529 Plan Options - NJ or NY?

Post by veggivet »

Deductibility outweighs higher expense fees. NJ gets my vote. If you decide to go with NY, however, I can offer one data point for you. I established four 529s over the last 30 years, and have never had a glitch, error, or any other problem occur with any transaction.
If you watch your pennies, your dollars will take care of themselves.
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anon_investor
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Re: 529 Plan Options - NJ or NY?

Post by anon_investor »

If the OP makes too much for the NJ state income tax deduction, there are potentially better 529 plans than NY that would offer identical benefits with possibly lower expense ratios.
sparky2528
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Re: 529 Plan Options - NJ or NY?

Post by sparky2528 »

Our family is currently using both the NY and NJ 529 accounts and we are NJ residents.
Both NJ and NY have distinct advantages.
They have recently made some improvements to the NJ 529 account which should be taken advantage of especially if your income falls under certain parameters.

NJ 529 advantages for NJ residents:
* $750 match dollar for dollar to your initial deposit if your household income is below $75,000 per year.
* If your gross income is below $200,000 per year a state income tax deduction of $10,000 per year is available starting in 2022.
*You are eligible for up to a $3,000 scholarship if the student attends a NJ school- the amount depends how long the account has been open and how many years you have made contributions.

NJ 529 disadvantages compared to NY 529:
*NY 529 uses Vanguard funds and the fees are much lower compared to NJ. The fees for the NJ 529 can be quite high. See page 27-29 from the NJ 529 Handbook on the link below.
https://www.franklintempleton.com/forms ... 29NJ-HNDBK
* NY 529 has many more individual investment choices outside of the age based options.

I would say if your family gross income is below $200K an excellent choice would be to choose the NJ 529 and invest in the S&P 500 fund which the fees are .13%. When the toddlers get closer in age to attending college you can move a portion into a more conservative investment option.
Best of luck and enjoy raising your children! It's quite a ride!
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grabiner
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Re: 529 Plan Options - NJ or NY?

Post by grabiner »

Do you work in NY? If so, you can take a NY state tax deduction for contributions there, although this may or may not reduce your total tax. If you are already getting a NJ state tax credit equal to your full NY tax, then the NY state deduction won't help you, as decreasing your NY tax will increase your NJ tax by an equal amount. If your NJ state tax credit is limited to the NJ tax on the same income, you will get some benefit; you'll have to work out the numbers.
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SerenityBlue
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Re: 529 Plan Options - NJ or NY?

Post by SerenityBlue »

Can anyone clarify for me if the NJ 529 $200k gross income limit is per individual or the total family? The way I interpreted the NJBest and the bill text seems to indicate its calculated by per individual. Wouldn't that mean a family with 2 earners should have $400k as the threshold for $20k state tax deduction?

NJBest - The New Jersey College Affordability Act allows for New Jersey taxpayers, with gross income of $200,000 or less, to qualify for a state income tax deduction for contributions into an NJBEST plan of up to $10,000 per taxpayer, per year, beginning with contributions made in tax year 2022.


New Jersey College Affordability Act (https://www.njleg.state.nj.us/2020/Bills/AL21/128_.HTM) - A taxpayer with gross income of $200,000 or less shall be allowed a deduction, not to exceed $10,000, from the taxpayer’s gross income for the taxable year in the amount of the taxpayer’s contribution for the taxable year to an account established pursuant to the “New Jersey Better Educational Savings Trust Program,”
whatshappeninman
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Re: 529 Plan Options - NJ or NY?

Post by whatshappeninman »

SerenityBlue wrote: Sat Jan 01, 2022 8:08 pm Can anyone clarify for me if the NJ 529 $200k gross income limit is per individual or the total family? The way I interpreted the NJBest and the bill text seems to indicate its calculated by per individual. Wouldn't that mean a family with 2 earners should have $400k as the threshold for $20k state tax deduction?

NJBest - The New Jersey College Affordability Act allows for New Jersey taxpayers, with gross income of $200,000 or less, to qualify for a state income tax deduction for contributions into an NJBEST plan of up to $10,000 per taxpayer, per year, beginning with contributions made in tax year 2022.


New Jersey College Affordability Act (https://www.njleg.state.nj.us/2020/Bills/AL21/128_.HTM) - A taxpayer with gross income of $200,000 or less shall be allowed a deduction, not to exceed $10,000, from the taxpayer’s gross income for the taxable year in the amount of the taxpayer’s contribution for the taxable year to an account established pursuant to the “New Jersey Better Educational Savings Trust Program,”
Came here to post this question. Though it's already too late for me this year, as I wasn't aware of the tax code change until I had already made my son's 529 contribution for the year. Anyone know?
sparky2528
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Re: 529 Plan Options - NJ or NY?

Post by sparky2528 »

The $200,000 limit is per family.
SerenityBlue
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Re: 529 Plan Options - NJ or NY?

Post by SerenityBlue »

sparky2528 wrote: Wed Jan 12, 2022 7:39 pm The $200,000 limit is per family.
Could you share how you determined this?
Comerford19
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Re: 529 Plan Options - NJ or NY?

Post by Comerford19 »

I went on the website and filled out a questionnaire. I posed the question as my tax status being married, filing separately and me and my wife each earn $150k. They said we would be entitled to the $10k deduction in this case. If we filed jointly I'd assume not.
bsteiner
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Re: 529 Plan Options - NJ or NY?

Post by bsteiner »

Thanks for letting us know that New Jersey now allows this deduction in some cases.

Here's a recent article on it: https://www.nj.com/news/2022/01/njs-529 ... ntive.html.

However, the income cap will eliminate many of the taxpayers who can afford to set up 529 plans.
grabiner wrote: Sat Jan 01, 2022 1:59 pm Do you work in NY? If so, you can take a NY state tax deduction for contributions there, although this may or may not reduce your total tax. If you are already getting a NJ state tax credit equal to your full NY tax, then the NY state deduction won't help you, as decreasing your NY tax will increase your NJ tax by an equal amount. If your NJ state tax credit is limited to the NJ tax on the same income, you will get some benefit; you'll have to work out the numbers.
Good point. You would have to see how either state's plan affects your tax in both states. Here's the schedule to the New Jersey return that shows how the credit is calculated: https://www.state.nj.us/treasury/taxati ... /97abc.pdf.
SerenityBlue
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Re: 529 Plan Options - NJ or NY?

Post by SerenityBlue »

bsteiner wrote: Fri Jan 14, 2022 10:22 am Thanks for letting us know that New Jersey now allows this deduction in some cases.

Here's a recent article on it: https://www.nj.com/news/2022/01/njs-529 ... ntive.html.

However, the income cap will eliminate many of the taxpayers who can afford to set up 529 plans.
Thanks for posting the article link. That seems to indicate the gross income limit/tax deduction is per individual as they are basing it off NJ Best's site and dual-income families have a higher limit/deduction. I also contacted NJ Best via their online form to see what they say. Guess asking a tax professional may be in order.
Now, New Jersey taxpayers with gross income of $200,000 or less can qualify for a state income tax deduction of up to $10,000 per taxpayer for contributions to the plan. That’s a deduction of up to $20,000 for a married couple filing a joint tax return.
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