You may be setting aside money every month for a child’s education, only to wonder whether a regular savings account is leaving valuable tax benefits on the table. A Franklin Templeton 529 account can provide tax-advantaged growth while keeping the account owner in control of the money. However, contribution limits, state tax rules, investment costs and qualified-expense requirements all affect how useful the plan may be for your family.
The Franklin Templeton 529 College Savings Plan is a New Jersey-sponsored education savings program administered by the New Jersey Higher Education Student Assistance Authority, with investment options managed by Franklin Templeton and other participating managers. Although it offers special benefits to eligible New Jersey residents, families should compare it with their home state’s plan before investing.
How contributions to a Franklin Templeton 529 work
Parents are not the only people who can contribute. Grandparents, other relatives and friends may add money to the account, including through the plan’s Ugift service. The account owner retains control over investments, withdrawals and beneficiary changes, regardless of who contributes.
The standard minimum initial contribution is $250. It may be reduced to $25 per investment option when recurring contributions are established as the account is opened. Financial intermediaries may impose different requirements. The plan currently permits total balances of up to $305,000 across its accounts for the same beneficiary. Once the combined balance reaches that limit, additional contributions are generally unavailable, although the account may continue to gain or lose value.
There is no federal income limit for opening or contributing to a 529 plan. Contributions are treated as completed gifts to the beneficiary for gift-tax purposes, even though the owner maintains account control. A special election may allow a contributor to front-load five years of annual gift-tax exclusions into one contribution. Large gifts can require gift-tax reporting, so contributors should consult a tax professional before using this strategy.
Federal and state tax benefits
Franklin 529 contributions are not deductible on a federal income tax return. The primary federal benefit comes after the money enters the account: investment earnings can grow without annual federal income tax, and withdrawals are federally tax-free when they do not exceed the beneficiary’s adjusted qualified education expenses.
New Jersey provides an additional benefit for eligible taxpayers. Contributions of up to $20,000 per year may qualify for a New Jersey state income tax deduction when the taxpayer’s gross income is $200,000 or less. This is a maximum deduction rather than a dollar-for-dollar tax credit, and eligibility may depend on current state rules and the taxpayer’s circumstances.
Eligible New Jersey residents may also have access to a one-time matching grant of up to $750 for a new beneficiary and an NJBEST scholarship worth up to $6,000. Income limits, residency requirements, funding availability and other conditions apply. Families living elsewhere should review their own state’s rules because their state may reserve deductions or credits for contributions to its own program.
For a broader explanation of account ownership and tax treatment, see this guide to how a 529 plan works and why it matters.
Which expenses qualify?
A common misconception is that a Franklin Templeton 529 plan can pay only college tuition. Under federal rules, qualified withdrawals can cover several types of education costs:
- Tuition and required fees at eligible colleges, universities, vocational schools and other postsecondary institutions
- Books, supplies and equipment required for enrollment or attendance
- Computers, certain software, internet access and related technology used by the beneficiary while enrolled
- Room and board for students enrolled at least half-time, subject to the school’s published allowance or the amount charged for institution-owned housing
- Services needed by a student with special needs in connection with enrollment or attendance
- Fees, books, supplies and equipment required for registered apprenticeship programs
- Eligible postsecondary credential programs, examinations and continuing-education costs required to maintain qualifying credentials
- Qualified elementary and secondary education expenses, within the federal annual limit
- Up to $10,000 in lifetime student-loan repayments per individual for the beneficiary or an eligible sibling
Beginning with the 2026 tax year, the federal limit for qualified K–12 distributions is $20,000 per beneficiary per year across all 529 accounts. Covered K–12 costs can include tuition, curriculum materials, instructional books, online educational materials, qualifying tutoring, certain standardized or admissions tests, dual-enrollment fees and eligible educational therapies for students with disabilities.
Because federal rules change and state treatment may differ, confirm an expense before taking a large withdrawal. The IRS guidance on qualified tuition programs explains the federal categories and limitations.
Expenses that generally do not qualify
For college students, transportation, travel, health insurance and ordinary personal expenses generally are not qualified 529 costs. Room and board also fails to qualify if the student is enrolled less than half-time. Optional equipment or activities may be ineligible when they are not required for enrollment, attendance or an applicable educational program.
If money is withdrawn for a nonqualified purpose, the contribution portion is not taxed again. However, the earnings portion is generally subject to federal income tax and a 10% federal penalty, as well as possible state taxes or recapture rules. Exceptions to the additional penalty may apply in situations involving scholarships, military academy attendance, disability or death, but income tax can still apply to the earnings.
Avoid using the same expense twice
Good recordkeeping is essential. You cannot use the same tuition payment to justify both a tax-free 529 withdrawal and an education tax credit. For example, families claiming the American Opportunity Tax Credit may need to reserve part of the student’s tuition for that credit and use the Franklin Templeton 529 distribution for other qualified costs.
Keep tuition statements, receipts, school budgets and proof of payment with your tax records. Try to take the distribution in the same calendar year that the qualified expense is paid. If the school issues a refund, federal rules may permit the money to be recontributed to a 529 plan for the same beneficiary within 60 days.
What happens if the beneficiary does not need all the money?
Unused funds do not automatically disappear. The owner may change the beneficiary to an eligible family member, keep the account for future education or take a nonqualified withdrawal. Another option is a direct rollover to the beneficiary’s Roth IRA, subject to a $35,000 lifetime limit, annual Roth IRA contribution limits and several federal conditions. The 529 account generally must have existed for at least 15 years, and recent contributions and their earnings may not qualify.
Is the Franklin Templeton 529 plan a good fit?
The plan may appeal to families seeking professional guidance, target-enrollment portfolios and potential New Jersey tax benefits. Its investment options include portfolios that gradually become more conservative as the expected enrollment date approaches, along with objective-based and individual-fund choices.
Before opening an account, review the current program description carefully. The plan offers multiple share classes, and sales charges, advisory costs and ongoing expenses can reduce returns. Investments are not bank deposits, are not FDIC-insured and can lose value. Compare total costs, state incentives and investment choices with other 529 programs rather than selecting a plan based only on the Franklin Templeton name.
