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.
Qualifying Expenses & Institutions
Qualified Higher Education Expenses may include tuition, certain room and board expenses in addition to any fees, books, supplies and equipment required for enrollment and attendance at an Eligible Education Institution. Computers and related technology such as internet access fees, software or printers are also qualified education expenses. The student must be the primary user of the equipment.
If the beneficiary is a special needs student, any additional costs required for enrollment or attendance to meet those needs will also be covered.
Federal Legislation includes changes to 529 College Savings Plans.
See the Disclosure Booklet (PDF) for more information.
Visit Ed.gov to find out if your school is accredited.
Federal Income Tax Benefits
As a 529 Plan, CHET offers important income tax benefits. Although contributions are not deductible on your federal tax return, any investment earnings can grow tax-deferred, and distributions to pay for the beneficiary’s college costs come out federally tax-free.
State Income Tax Information
In addition to federal tax benefits, there are state tax benefits as well. For CHET, tax treatment is as follows:
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 contribution for income tax purposes.
Earnings, Qualified Withdrawals and outgoing Rollovers are not subject to state income tax. Connecticut tax benefits related to CHET are available only to Connecticut tax payers. You should talk to a qualified advisor about how Connecticut tax provisions affect your circumstances.
Directing Contributions from Your Connecticut State Tax Refund
Are you getting a Connecticut state tax refund this year? You can deliver potential lifelong returns to an aspiring college-bound child in your life! 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 It
- Complete Schedule CT-CHET when doing your 2017 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
- See a sample here:
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. There’s even an option 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.