Exciting news for Garden State residents who are struggling to pay for higher education! Relief is on the way through the New Jersey College Affordability Act.
Beginning in tax year 2022, three tax deductions are available to residents earning fewer than $200,000 a year.
1. $10,000 in contributions are deductible through the NJBEST savings trust.
The first tax incentive is available to residents who participate in the New Jersey Better Education Savings Trust (NJBEST.) During the 2022 tax year, accountholders may deduct up to $10,000 in contributions that they make to their savings trust.
Plus, earnings from contributions to the NJBEST 529 College Savings Plan are not subject to federal income tax–provided funds are withdrawn for qualified higher education expenses, or up to $10,000 is paid toward principal or interest of a student loan.
Funds in an NJBEST account may also be invested, by the contributor, in portfolios that would meet the educational goals of the investor.
Depending on the market, this option can offer you significant advantages — especially if you’re walking the line between saving for a dependent’s higher education and saving for your retirement. Higher earnings in your NJBEST savings plan would, under some circumstances, allow you to add additional funds into a tax protected plan for your retirement. Consulting with an experienced tax expert will help steer you and your financial goals in the right direction.
2. Up to $2,500 deductible in principal and interest for NJCLASS loans.
The second tax incentive offered by the state is the New Jersey College Loans to Assist State Students (NJCLASS.) It’s a loan program that’s used to shore up education expenses not covered by other aid, including Federal Direct loans.
NJCLASS loans are available to Garden State students who attend approved schools in- or out-of-state. The loans are also available to state students attending online classes or classes abroad. NJCLASS loans are also accessible to non-resident students attending an approved school in New Jersey.
Up to $2,500 of principal and interest paid on NJCLASS student loans may be deducted per year. Again, annual gross income must fall at or below $200,000.
3. Up to $10,000 for in-state higher education costs.
The third tax deduction is for specific higher education costs for in-state schools.
State residents may deduct the cost of tuition, books, computers and other expenses associated with their higher education. The deduction may not exceed $10,000 and includes the costs of the taxpayer, a spouse or a dependent.
New Jersey Senator Sandra Cunningham (D-Hudson), Senate Higher Education Committee Chair was co-sponsor of the New Jersey College Affordability Act. According to Cunningham, “Our hope with this bill is that by providing tax incentives to families, we can assist with the financial burden they may incur sending a child to college.”
The bill was unanimously approved by the New Jersey Senate and signed into law in June 2021 for the 2022 tax year and beyond.
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Saving for college isn’t easy — especially with the current economy and other financial demands, like assisting older parents or putting money away for your own retirement. Give us a call to see if our Family Advisory Services could be right for you.