Connecticut Higher Education Trust

Frequently Asked Questions - Tax Considerations

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What are the federal and state tax advantages?
When you contribute to CHET, your account earnings have the opportunity to  grow federal and Connecticut income tax-deferred until withdrawn.The earnings portion of any distributions used to pay for qualified higher education expenses will be free from federal and Connecticut income tax. This federal income tax-free treatment of qualified withdrawals and other federal tax benefits are permanently in place for 529 plans through the passage of the Pension Protection Act of 2006.


Is there a Connecticut income tax deduction?
Yes, you may also be eligible for a Connecticut income tax deduction. The amount contributed by a Connecticut taxpayer to CHET accounts during a tax year is deductible from Connecticut adjusted gross income in an amount not to exceed $5,000 for a single return or $10,000 for a joint return for that tax year.

The Connecticut income tax deduction applies to contributions made in calendar year 2006 and beyond, including contributions dating back to January 1, 2006. 

The Connecticut Department of Revenue Services "DRS" recently issued interpretive guidance regarding the Connecticut income tax deduction under Connecticut tax law. This guidance, in the form of frequently asked questions and answers, is available through DRS's website at www.ct.gov/drs. Please refer to this link for additional information on the Connecticut income tax deduction.  You can also contact DRS at 1-800-382-9463.


What are the federal estate and gift tax benefits?
Contributions to CHET may help you reduce the taxable value of your estate. Contributions to CHET, together with all other gifts from the account owner to the beneficiary, may qualify for an annual federal gift tax exclusion of $12,000 per donor, per beneficiary for 2008. If an account owner's contribution to a CHET account for a beneficiary in a single year exceeds $12,000, the account owner may elect to treat up to $60,000 of the contributions, or $120,000 for joint filers, as having been made over a period of up to five years for federal gift tax exclusion.

 

Are contributions to CHET federal tax deductible?
No, contributions to CHET or any 529 plan are not deductible for federal income tax purposes.


How are withdrawals for qualified higher education expenses taxed?
If you are taking a withdrawal to pay for qualified higher education expenses of the beneficiary, there will be no federal or Connecticut income tax. Use the Withdrawal Request form (PDF, 81KB).


How are withdrawals for non-qualified expenses taxed?
If funds are withdrawn for a purpose other than to pay for qualified higher education expenses (except in the event of a beneficiary's death, disability, scholarship or attendance at a military academy), or they are treated as withdrawn (for example, if an ineligible beneficiary is named), there will be a 10% additional federal tax on the earnings portion of the distribution.

The Connecticut Department of Revenue Services ("DRS") recently issued interpretive guidance regarding the taxation of withdrawals from the Program under Connecticut tax law. This guidance, in the form of frequently asked questions and answers, is available through DRS's website at www.ct.gov/drs. Please refer to this link for information on CT taxation of non-qualified withdrawals.

 

What is the Generation Skipping Tax?
Transfer of funds or a change in beneficiary is subject to the Generation Skipping Tax (GST) if the new beneficiary is two or more generations below the prior beneficiary. If transfer is subject to GST, tax is imposed on the prior beneficiary. Account owners should consult their own tax advisors for guidance when considering a change of beneficiary or a transfer to another account.


What is the "sunset provision" and how does it affect the federal income tax treatment of 529 Plans?
Federal income tax-free treatment of qualified withdrawals and other federal tax benefits are permanently in place for 529 plans through the passage of the Pension Protection Act of 2006. The Sunset Provision is the provision of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that stated that the law allowing federal income tax-free qualified withdrawals was set to expire December 31, 2010.  For more information, see the CHET Disclosure Booklet and Participation Agreement (PDF, 2,144KB).


Read more FAQs.

 

WE'RE HERE TO HELP

Have a question you don't see listed? Need clarification?

Call us toll-free at
1-888-799-CHET (2438)

We're available 8:00 am - 8:00 pm Eastern Time, Monday - Friday.


Don't forget you can set up an Automatic Contribution Plan (PDF, 50KB) or use Payroll Deduction (PDF, 45KB) for your contributions (if offered by your employer). If you are a State of Connecticut employee, use the Connecticut State Employee Payroll Deduction form (PDF, 75KB).

PDF files require the free Adobe Acrobat Reader. Get it here.


Access our glossary for the meanings of terms used throughout this site.

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The tax information contained on the Connecticut Higher Education Trust (the Plan) Web site is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. It was written to support the promotion of the products and services addressed in the Web site. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.

The Plan is administered by the Connecticut State Treasury. TIAA-CREF Tuition Financing, Inc. (TFI) serves as Program Manager. TFI's affiliate, TIAA-CREF Individual & Institutional Services, LLC, is the distributor.

The investment approaches described are not recommendations and do not take into consideration personal goals or preferences. After evaluating information you consider important in making an investment choice, the ultimate decision is up to you. It is a good idea to revisit your investment strategy periodically as your goals, personal financial situation, and market conditions change.

Consider the investment objectives, risks, charges and expenses before investing in the Plan. Please call toll-free 1-888-799-2438 for a Disclosure Booklet containing this information. Read it carefully.

Before investing in a 529 plan, you should consider whether the state you or your designated beneficiary reside in or have taxable income in has a 529 plan that offers favorable state income tax or other benefits that are only available if you invest in that state's 529 plan.

The State of Connecticut, its agencies, TIAA-CREF Tuition Financing, Inc., Teachers Insurance and Annuity Association of America and its affiliates do not insure any account or guarantee its principal or investment return. Account value will fluctuate based upon a number of factors, including general market conditions.

The Plan Web site is for informational purposes only, and does not constitute an offer to sell or solicitation of an offer to buy any security that may be referenced on the site. Such offer or solicitation can be made only through the Disclosure Booklet.

The Plan Web site contains links to other Web sites. Neither the Plan Trust nor TFI and its affiliates are responsible for the content of those other Web sites. The accuracy of information on those sites cannot be confirmed.

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© 2008 TIAA-CREF Tuition Financing Inc.