See the difference these tax advantages can make over time in the table below.
This example assumes an initial investment of $5,000, monthly contributions of $100, and a 6% annual rate of return over 18 years. The taxable account assumes a 28% federal and 5% state tax rate. The illustration is for illustrative purposes only and does not represent the performance of any specific Investment.
Federal Income Tax Benefits
Any investment earnings grow 100% tax-free, and distributions used to pay for the beneficiary’s college costs are tax-free.
State Income Tax Information
Any investment earnings, qualified withdrawals and any outgoing rollovers are also free from Connecticut state income tax.
In addition, contributions are deductible for Connecticut income tax purposes up to $5,000 per year for a single return or $10,000 per year for a joint return. If you exceed this amount, you can carry over the excess amount for the five taxable years following the deduction. An incoming rollover from another qualified tuition program does not qualify as a contribution for income tax purposes.
You should talk to a qualified advisor about how Connecticut tax provisions affect your circumstances.
Withdraw Funds Tax-Free for College Expenses
Tuition, room and board, books, computers and more—funds in your CHET 529 plan account aren’t taxed when spent on qualified expenses. (And they can be used at nearly any accredited university, college or vocational school!)
Directing Contributions from Your Connecticut State Tax Refund
Are you getting a Connecticut state tax refund this year? CHET coordinates with the Connecticut Department of Revenue Services to make it easy to deposit your tax refund directly from your CT state tax return into your CHET account.
What You’ll Need
In order to make a direct deposit from your CT state tax return to CHET, you’ll need to have an account established, and have the following information:
Your CHET account number
Your investment option number
How to Do ItComplete Schedule CT-CHET when doing your 2019 Connecticut state taxes. Refer to sample below that shows what is on the form, including:
- Provide the beneficiary name
- Select “CHET Direct 529 College Savings Plan (TIAA-CREF)”
- Provide your CHET account number in this format: (1) your 4-digit investment option1 and (2) your CHET account number
- Provide dollar amount
1 Investment Option Number and Account Number may be found on your statement or online when logged in to your account.
Estate Tax Planning Benefits
There’s another tax advantage unique to the 529 plan. There’s no federal gift tax on contributions up to $15,000 per year for single filers and $30,000 for married filers. You can choose to gift amounts up to $75,000 for single filers and up to $150,000 for married filers if pro-rated over 5 years. This means you could make a one-time gift equivalent to the 5 year amount and it could all qualify for the federal gift tax exclusion. Consult your tax advisor.