As back to school approaches for many, parents experience the inevitable emotional rollercoaster of sending their children to college. Joyful emotions are mixed with angst that comes with the first tuition bill. Many people set aside funds to pay for a child or grandchild’s college education through a 529 plan. A 529 plan is referred to as a qualified tuition plan under the Internal Revenue Code and it is an account that provides tax-advantaged education savings.
In many states, there are two types of 529 plans. One type is a prepaid tuition plan, which may be used for tuition but generally does not cover other expenses. However, New Jersey does not offer a prepaid plan option. The other type of 529 plan is a Savings Plan. A Savings Plan includes an investment account that may be used for tuition and additional expenses. In New Jersey, an NJBEST College Savings Plan allows an account holder to invest funds in an account for a student’s tuition, books, supplies, fees, room and board.
In New Jersey, anyone over the age of 18 with a permanent United States mailing address and a Social Security Number or Taxpayer Identification Number may open a 529 account through NJBEST. The parties to a 529 account in New Jersey include the account owner and the beneficiary. Either the account owner or the beneficiary must be a New Jersey resident. Pursuant to N.J.A.C. 9A:10-7.6, contributions to an NJBEST 529 account may be withdrawn for a beneficiary’s education expenses.
Clients (often grandparents) often ask us if establishing a 529 plan will cause them to become ineligible for Medicaid. A 529 savings plan is generally treated as a countable resource in determining an applicant’s Medicaid eligibility. However, if a person establishes a 529 account but nominates someone else (often a younger generation) as the account owner, then the funds in the 529 account will not likely be a countable resource for Medicaid eligibility purposes. Alternatively, a 529 account owner may transfer a 529 account to someone else.
Notably, Medicaid eligibility often involves a “Look-Back” period, meaning that if account ownership is transferred during a certain period prior to a person applying for Medicaid, a state’s Medicaid agency may “look back” to that transfer and include the transfer as a countable asset in determining Medicaid eligibility if the assets were sold or gifted under market value. New Jersey’s look-back period is five (5) years.
College planning extends beyond selecting a savings account. When preparing for college tuition, consider the impact it may have on parents’ and grandparents’ estate and Medicaid plans. For help with planning, consider speaking to a member of Cooper Levenson’s tax practice group.
Jane Donio-Enscoe is a summer law clerk with Cooper Levenson and a student at Rutgers Law School, expected to graduate in 2026.
Craig Panholzer is an attorney in Cooper Levenson’s Business & Tax practice group in its Florida office. He concentrates his practice on business transactions, estate planning, special needs planning, probate and tax matters.
Michael Salad is an attorney in Cooper Levenson’s Business & Tax practice group. He concentrates his practice on estate and asset protection planning, special needs planning, business transactions, mergers and acquisitions and tax matters. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in Florida, New Jersey, New York, Pennsylvania, Maryland, Connecticut, Georgia, Massachusetts, Alabama and the District of Columbia.