by Gabrielle Charette, Esq., executive director, NJ Higher Education Student Assistance Authority (HESAA)
This year, Governor Christie has declared May 29 – “529 College Savings Day.” Today, all families should take a moment to consider opening a 529 savings plan which would allow them to put funds aside for future college costs and allow those funds to earn interest on a state and federal tax free basis. According to the Project on Student Debt, two-thirds of American college seniors who graduated in 2010 had student loan debt, and they carried an average of $25,250 in debt. Saving over time through a 529 plan can help to significantly reduce a students’ reliance on loans to finance their education.
While there are a number of 529 savings plans, New Jersey’s Better Educational Savings Trust (NJBEST) has received Morningstar’s highest rating and offers some specific benefits for New Jersey residents. Families considering opening a NJ BEST account should be aware of the following benefits and program parameters:
- Minimum Amount – Families can open a NJ BEST savings account with as little as $25.00.
- Maximum Amount – The maximum amount that can be set aside per beneficiary is $305,000. That means a family with two children can put aside a total of $610,000 for their two children. Families with more limited means, however, should not be deterred. As noted above, an account can be opened with as little as $25.00.
- Financial Aid – The first $25,000 in a NJ BEST account does not count towards state financial aid need analysis. Hence, families should not be deterred from saving because they believe it will limit their state financial aid eligibility.
- Grandparents – Grandparents and other relatives can contribute without owing any gift tax, provided certain conditions are met. Specifically, a grandparent can contribute up to $65,000 in a single year without owing any federal gift tax so long as no -additional contributions are made in the subsequent 5 years.
- Tax Incentive – Interest earned on a 529 plan is tax deferred at both the state and federal level and withdrawals are tax free when used to pay for qualified education expenses.
- Scholarships – Families who save between $1200 -$3600 automatically receive a scholarship ranging from $500-$1500 if the student chooses to attend college in the state of New Jersey.
A college education has never been more important nor has it ever been more costly. Savings put aside today can make the cost of a higher education more manageable tomorrow. For more information about 529 savings plans please visit www.HESAA.org or www.NJBEST.org.
Gabrielle Charette is the Executive Director of the NJ Higher Education Student Assistance Authority the only state agency with the sole mission of providing students and families with the informational and financial resources necessary to attain a post secondary education.
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