Tax Deductions for Education Expenses in Connecticut

Rules for Claiming the Section 529 Deduction

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The state of Connecticut offers one of the higher tax deduction limits for residents who contribute to a Section 529 college savings plan. Single taxpayers can deduct up to $5,000 in Connecticut Higher Education Trust (CHET) contributions, or $10,000 for couples filing jointly.

Connecticut residents who contribute more than the maximum deduction for any year to a CHET plan are permitted to “carry it forward” for up to five years. In other words, a single parent who makes a $6,000 contribution to the CHET plan could deduct $5,000 this year and the remainder the following year.

And as with most states, distributions from the Connecticut Section 529 plan that are used for qualified education expenses are not subject to taxation.

Advantages of the Connecticut Section 529 Tax Deduction

If you're a Connecticut resident trying to choose between a Section 529 plan and another college savings vehicle, you need to account for the potential tax savings of contributing to the CHET Plan.

Connecticut residents only receive a deduction for contributing to a CHET savings plan, and not plans from other states.

Considering that the top income tax bracket for Connecticut residents is 6.99%, a contribution of $5,000 could potentially save $350 at tax time. In other words, receiving the deduction could be similar to a 6.99% bonus on the amount contributed.

Like other 529 college savings plans, CHET is designed so that the account holder saves more money over the life of the account. Earnings in a 529 plan are not subject to state or federal taxes, and Connecticut's plan is no different.

Using CHET Funds

The withdrawals from a CHET 529 plan are tax-free at both the federal and state level, as long as they're used for qualified higher education expenses.

Funds from a 529 savings plan aren't just for tuition. They can be used for some room and board costs, fees, books, and other supplies such as computers, printers, and Internet and technology fees.

If you live in Connecticut, but your child wants to go to school in another state, your 529 plan will still be available to cover the costs. The funds can be applied to accredited colleges and universities in the United States and some colleges in other countries.

CHET Contributions and Deductions

Connecticut residents can deduct contributions to a Connecticut Section 529 plan on Line 48 of the Connecticut Individual Income Tax Return (Form CT-1040).

Anyone can contribute to a Section 529 plan—parents, grandparents, or other relatives—and there's no income limitation. Regardless of how much money they make, contributors to a 529 plan need to be aware of U.S. gift tax limitations and understand how larger gifts may affect their eventual estate taxation and any other potential tax situations.