Prior to Tax Year 2022 contributions to 529 plans were not deductible, but the money grew tax-free if used for qualified educational expenses. A rollover from one account to another was considered a qualified distribution within the meaning of N.J.S.A. 54A:6-25 as long as it met the requirement in section 529(c)(3)(C)(i) of the Internal Revenue Code.
For Tax Year 2022 and forward, The New Jersey College Affordability Act allows for three Income Tax deductions for those who file tax returns showing gross income of $200,000 or less. Deductions include contributions to an NJBEST 529 savings plan, payments made for an NJCLASS student loan, and tuition costs for New Jersey colleges and universities.
New Jersey Better Educational Savings Trust (NJBEST)
You can deduct up to $10,000 of contributions made during the year into an NJBEST account.
Example: You contribute $1,000 per month, beginning in January. If your gross income is $200,000 or less, you can deduct the maximum amount of $10,000.
The Higher Education Student Assistance Authority (HESAA) may offer additional NJBEST 529 College Savings Plan benefits to New Jersey residents.
New Jersey College Loans to Assist State Students (NJCLASS)
You can deduct up to $2,500 of principal and interest paid on student loans during the year under NJCLASS if your gross income is $200,000 or less.
New Jersey Higher Education Institution Tuition Costs
If you, your spouse, or your dependent enroll in and attend a New Jersey institution of higher education, you can deduct up to $10,000 for tuition costs.