Connecticut 529 Tax Deduction: How to Claim Your Contributions

Saving for education is more affordable with a 529 plan, and Connecticut offers a state income tax deduction for contributions. This helps families set aside money for future college expenses while reducing their taxable income. To take full advantage of this benefit, it’s important to understand the deduction rules and how to claim it.

Maximizing this tax break requires knowing who qualifies, which accounts are eligible, and how to report contributions properly.

Residency Requirements

To claim the Connecticut 529 tax deduction, the contributor must be a Connecticut resident for tax purposes. Residency is based on domicile or the number of days spent in the state. A domiciliary resident maintains a permanent home in Connecticut and intends to return if temporarily living elsewhere. Non-domiciliary residents may still qualify if they spend at least 183 days in the state during the tax year.

For part-year residents, the deduction is prorated based on the time they were subject to Connecticut income tax. If someone moves mid-year, only contributions made while a resident count. Nonresidents who earn income in Connecticut but do not meet residency criteria cannot claim the deduction.

Residency status is determined when filing a Connecticut income tax return. Taxpayers may need to provide documentation such as utility bills, lease agreements, or voter registration records if their residency is questioned. The state’s Department of Revenue Services may audit claims, particularly for individuals with multiple residences or frequent travel between states.

Qualifying Accounts

Only contributions to the state-sponsored CHET (Connecticut Higher Education Trust) program qualify for the Connecticut 529 tax deduction. This includes both the CHET Direct Plan, managed by Fidelity Investments, and the CHET Advisor Plan, offered through financial advisors. Contributions to out-of-state 529 plans do not qualify, even if the beneficiary is a Connecticut resident.

The CHET Direct Plan offers investment options, including age-based portfolios that adjust as the beneficiary approaches college and static portfolios with fixed allocations. The CHET Advisor Plan provides professional financial guidance but may involve higher fees. While both plans qualify for the tax deduction, investment choices, fees, and management preferences should be considered when selecting an account.

Only contributions made by the account owner are eligible. While relatives or friends can contribute, only the designated account holder can claim the tax benefit. If both parents contribute but only one is the account owner, only that parent can deduct the contributions.

Contribution Limits

Connecticut allows taxpayers to deduct contributions to a CHET 529 plan, but there are limits. As of 2024, individuals can deduct up to $5,000 per year, while married couples filing jointly can claim up to $10,000. These limits apply per tax return, not per beneficiary. A taxpayer contributing to multiple CHET accounts cannot exceed the maximum deduction amount.

Amounts exceeding the annual deduction limit can be carried forward for up to five years. For example, if a single filer contributes $15,000 in one year, they can deduct $5,000 that year and carry forward the remaining $10,000 over the next four years, subject to the annual cap.

Deduction Procedures

To claim the Connecticut 529 tax deduction, contributions must be made by December 31 of the tax year. Connecticut follows a calendar-year tax system, meaning deposits made after this date are deductible in the following year’s return. Financial institutions may have internal cutoffs for year-end transactions, so contributors should ensure payments are processed on time.

The deduction is reported on Schedule CT-CHET, a supplemental form for documenting 529 plan contributions. This form requires listing the total amount contributed, subject to deduction limits. The final deduction amount is then transferred to Form CT-1040, the main state income tax return.

If contributions exceed the annual cap, the carryforward provision allows taxpayers to apply the excess in future years. However, tracking these carryforwards is the taxpayer’s responsibility, as the state does not apply them automatically. Keeping detailed records of prior-year deductions ensures accurate reporting and prevents missed tax benefits.

Coordination with Federal Taxes

While Connecticut offers a state income tax deduction for 529 plan contributions, the federal tax system does not. The IRS does not allow a deduction for 529 deposits, but earnings within the account grow tax-free if withdrawals are used for qualified education expenses.

Withdrawals remain tax-free for tuition, fees, books, and other approved educational costs at eligible institutions. If funds are used for non-qualified expenses, the earnings portion is subject to federal income tax and a 10% penalty. Connecticut does not impose additional penalties but may require taxpayers to recapture previously claimed deductions if funds are misused.

Documentation

Accurate records are necessary to substantiate 529 plan contributions and ensure compliance with Connecticut’s tax deduction rules. Taxpayers should retain bank statements, transaction confirmations, and CHET account statements that show the amount and date of each contribution. These documents serve as proof if the Department of Revenue Services audits a tax return or requests verification.

Tracking carryforward amounts is also important for those who exceed the annual deduction limit. Since Connecticut allows excess contributions to be deducted in future years, maintaining a record of prior-year deductions prevents errors when filing subsequent tax returns. Taxpayers should also document withdrawals and their corresponding expenses to confirm that distributions are used for qualified education costs, preserving both state and federal tax benefits.