Tax benefits are the primary reason many investors open 529 plans to save for education expenses. These mainly come in the form of:
- Deferred taxes on the dividends, distributions, and growth of investments within the plan
- Tax deductions from contributions made to the plan
The availability of, and rules for tax deductions from contributions vary significantly by your state of residence. We’ll be taking a look at the rules of a high-earner in New Jersey for this discussion.
High Earners May Not Be Eligible for State Tax Benefits
In New Jersey, up to $10,000 a year of 529 plan contributions are deductible from state taxes for residents contributing to the New Jersey 529 plan. However, this deduction is only available for those with a gross income of $200,000 or less.
That means if you’re a New Jersey resident who is fortunate enough to earn $200,000 a year or more, then you unfortunately do not get the benefit of the state tax deduction for contributions you make to a New Jersey 529 plan (though you still get the benefits of deferred taxes on the growth of your investments within the plan).
Compare Other 529 Plans If You Don’t Qualify For State Tax Benefits
It’s important to note not all 529 plans are created equal when it comes to fees and investment options. And you are generally not restricted to just using your state’s 529 plan. Let’s take a look at the potential fee benefits a high-earning New Jersey household could realize by moving their NJ 529 plan to another state’s plan such as California.
For this comparison we are looking at:
- 529 Plan State: the state where the plan is sponsored
- Program Fees: asset-based fees charged by the plan administrator for managing the plan’s underlying investments
- 60/40 Fees: fund fees for implementing a 60% Stock / 40% Bond portfolio utilizing the options available within the plan. Fees for each individual fund are noted in parentheses
- Yrly Fees Per $100,000: the expected yearly program and fund fees paid for every $100,000 invested in the plan
| 529 Plan State | Program Fees | 60/40 Fees | Yrly Fees Per $100,000 |
| New Jersey | 0.10%1 | 0.046% blended – Franklin U.S. Large Cap Index 529 Portfolio (0.03%) – Franklin U.S. Core Bond ETF 529 Portfolio (0.07%) | $146 (0.146% total fees) |
| California | 0.01%2 | 0.058% blended – Index U.S. Equity Portfolio (0.05%) – Index Bond Portfolio (0.07%) | $68 (0.068% total fees) |
Data as of September 16, 2025 from each 529 Plan Sponsor’s Website
1. No fee for Franklin U.S. Government Money 529 Portfolio
2. For passive and index investment options
For every $100,000 invested in New Jersey’s 529 Plan, you are paying $78 more per year in fees vs. investing in a similar strategy within California’s 529 Plan. This may seem small but this could add up to thousands of dollars over the life of your 529 plan when you consider that you are a) paying this every year per and b) losing out on the power of compounding each time you pay the difference.
Remember, achieving your long-term financial goals is not about swinging wildly for the fences. It’s about making the small, disciplined choices each day that lead to a winning outcome.
If you’d like to discuss anything in more detail, reach out to your dedicated advisor if you’re a current client or email to learn more about our services.
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Disclosures:
This content is for educational purposes only and is not an investment recommendation. This is an illustrative example highlighting the difference in program and fund fees between two 529 Plans allocated to 60/40 strategies using available options. There are other considerations when selecting a 529 plan such as availability of investments, the expected performance of those investments, and other fees. The selection of California in this example is arbitrary and is not an endorsement of any specific plan. Speak with a licensed financial advisor before making any changes to your investments. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.
Kangpan & Co. 