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Does NJ offer a 529 tax deduction? Residents will be happy to hear that the answer is now YES! New Jersey is the 35th state to offer an income tax benefit for residents who contribute to a 529 plan. The NJ 529 tax deduction is part of a comprehensive college affordability plan in the state’s fiscal year 2022 budget.
New Jersey Governor Phil Murphy, Senate President Stephen Sweeney, and Assembly Speaker Craig Coughlin agreed upon several provisions to help families and students save for college and pay off student loans, including an NJ 529 state tax deduction.
Let’s walk through some new NJ 529 tax benefits and the rest of the plan’s highlights:
New Jersey State Income Tax Deductions
The budget includes state income tax relief for college savers, families with current college students, and student loan borrowers.
NJ 529 tax deduction
The agreement includes a provision to allow New Jersey taxpayers to deduct 529 plan contributions of up to $10,000 per year from state taxable income. The benefit would only be available to households with an annual income of $200,000 or less. To qualify, families must contribute to the NJ Better Education Savings Trust (NJBEST) 529 plan.
New Jersey 529 Tax Deduction Limit: $10,000 per year
Tax deduction for tuition payments
The proposal also includes a state income tax deduction for up to $10,000 in contributions for in-state tuition payments. Like the 529 plan tax benefit, this tax deduction only applies to households earning up to $200,000.
Tax deduction for student loan payments
Families who earn up to $200,000 may also deduct up to $2,500 in student loan repayments from New Jersey taxable income. Qualifying repayments include payments of interest and principal toward New Jersey College Loans to Assist State Students (NJCLASS).
NJCLASS student loans are available to New Jersey residents and students and include in-school, refinance, and consolidation options.
NJBEST Matching Contributions
New Jersey’s college affordability plan encourages low-income families to save for college by offering matching contributions. The government will contribute up to $750 in matching payments for lower-income families to a newly opened NJBEST 529 plan. Families who earn less than $75,000 per year are eligible.
16 states currently offer matching grants for residents who use their 529 plans. Students with even a small amount of college savings are more likely to enroll in and graduate from college than students without any savings.
Free College Tuition for New Jersey Students
New Jersey’s Community College Opportunity Grant (CCOG) currently offers residents free tuition for two years at an in-state community college.
The Garden State Guarantee provides free tuition at New Jersey public four-year colleges for third- and fourth-year students. Eligible students must have an annual household income below $65,000. Tuition discounts for higher-income students would phase out on a sliding scale. Individual colleges would determine their own income threshold.
Conclusion
The NJ 529 tax deduction makes it easier to save for college with better tax breaks. New Jersey residents have traditionally experienced fewer benefits with the state’s 529 plan, but 2022 is looking brighter with free tuition, matching contributions, and the 529 NJ tax deduction.
The NJBEST 529 plan is available exclusively to New Jersey residents. Not a New Jersey resident? Explore more 529 plan options here.
