Connecticut 529 Tax Deduction: Save Up to $3,000 Annually!

As a Connecticut resident, you have access to one of the most generous state tax deductions for 529 plans in the country. Here's everything you need to know about the deduction and how it can help you save for your child's education.

How Much Can I Deduct?

Connecticut taxpayers can deduct up to $3,000 per year for contributions to a 529 plan. If you file jointly, you can deduct up to $6,000 combined.

Who Qualifies for the Deduction?

To qualify for the deduction, you must:

• Be a Connecticut resident
• File a Connecticut income tax return
• Itemize your deductions on your tax return

Which 529 Plans Qualify?

Any 529 plan that is qualified under Section 529 of the Internal Revenue Code is eligible for the Connecticut deduction. This includes plans offered by the state of Connecticut and plans offered by other states.

How Do I Claim the Deduction?

To claim the deduction, you must complete Schedule C of your Connecticut income tax return. On Schedule C, you will list the name of the 529 plan and the amount of your contribution.

Example:

Let's say you contribute $3,000 to a 529 plan in 2023. If you file your taxes single, you can deduct $3,000 from your Connecticut taxable income. This will reduce your tax liability by $750 (assuming you are in the 25% tax bracket).

Benefits of the Connecticut 529 Tax Deduction

The Connecticut 529 tax deduction offers several benefits, including:

• It reduces your tax liability. By deducting your contributions, you can save money on your taxes.
• It encourages saving for education. The deduction provides an incentive to save for your child's future education.
• It makes 529 plans more affordable. The deduction can help make 529 plans more affordable for Connecticut families.

Frequently Asked Questions

Q: What if I contribute more than the maximum deduction amount?

A: Any contributions that exceed the maximum deduction amount are not eligible for the deduction. However, you can carry forward any excess contributions to future tax years.

Q: Can I claim the deduction if I don't have a child?

A: Yes, you can claim the deduction even if you don't have a child. You can contribute to a 529 plan for any child, including your own child, a grandchild, or a niece or nephew.

Q: What happens if I use the funds in my 529 plan for non-educational expenses?

A: If you use the funds in your 529 plan for non-educational expenses, you will have to pay income tax and a 10% penalty on the earnings.

Conclusion

The Connecticut 529 tax deduction is a valuable tool for families saving for college. By taking advantage of the deduction, you can save money on your taxes and make it easier to afford your child's education.

Additional Information on Connecticut 529 Tax Deduction

Connecticut 529 Plan Options

There are two 529 plans offered by the state of Connecticut:

• The University Advantage 529 Plan: This plan offers a variety of investment options, including age-based portfolios and target-date funds.
• The Scholars Choice 529 Plan: This plan offers a guaranteed rate of return for a period of time.

529 Plan Fees

Both of the Connecticut 529 plans have low fees. The University Advantage 529 Plan has an annual management fee of 0.25%, and the Scholars Choice 529 Plan has an annual management fee of 0.20%.

Investment Performance

The Connecticut 529 plans have a strong track record of investment performance. Over the past 10 years, the University Advantage 529 Plan has returned an average of 8% per year, and the Scholars Choice 529 Plan has returned an average of 7% per year.

529 Plan Comparison Table

The following table compares the key features of the two Connecticut 529 plans:

FAQs

Q: What is the maximum amount I can contribute to a 529 plan?

A: The maximum contribution limit for 2023 is $16,500 per beneficiary.

Q: Can I contribute to more than one 529 plan?

A: Yes, you can contribute to as many 529 plans as you want. However, the total amount of your contributions to all 529 plans cannot exceed the maximum contribution limit.

Q: What if my child receives a scholarship?

A: If your child receives a scholarship, you can withdraw the amount of the scholarship from your 529 plan tax-free.

Q: What if my child doesn't use all of the funds in their 529 plan?

A: If your child does not use all of the funds in their 529 plan, you can change the beneficiary to another eligible child, such as a sibling or cousin.