Dec 28, 2022
A great year-end tax strategy for Connecticut residents is a contribution to the Connecticut Higher Education Trust, also known as the CHET Plan. If you’re preparing to send someone to school, this is an excellent way to save while receiving deductions and creating tax-deferred growth. On this episode, learn five ways to get the most out of contributing to CHET accounts or other qualifying 529 plans.
You will want to hear this episode if you are interested in...
- Making your first contribution [1:30]
- Taking advantage of the Baby Scholars Program [2:17]
- Investing the money carefully [3:30]
- Using your CHET account for qualified expenses [10:46]
- Creating tremendous tax-deferred growth [13:00]
Get the ball rolling
The first thing you need to do to take advantage of the CHET Plan is to make a contribution. Simply opening the account is not enough. But hurry! You have until the end of the year to do so for a deduction in 2022. If you have a child under the age of one or you adopted a child in the last year, you can get up to a $100 bonus by taking advantage of the Baby Scholars Program. Within 60 days of opening the CHET, that $100 bonus will be deposited into your account if you do so by midnight on the child's first birthday or within one year of adopting your child.
Like any investment, the key to maximizing your returns with a CHET account is using caution around how the money is invested. These plans are supposed to be easy. They are set up so that investors need to exert minimal effort to manage them. However, just because something is being done for you does not mean it’s the best option. Listen to this episode to hear my insight on how you should invest funds in a CHET account!
Understanding qualified expenses
If your child is going off to school next Spring and you’re about to write a $10,000 tuition check, you have a potential $10,000 deduction just sitting in the bank. Putting that money into a 529 plan like the CHET plan is the easiest way to create a deduction for yourself by simply making a $10,000 contribution and then pulling it out. But a big mistake people make with CHET accounts is not using that money for qualified expenses so that it counts as a deduction.
Qualified expenses include tuition, fees, books, supplies, computers, computer software, and internet access. Room and board also qualify, but the student needs to be enrolled at least half time, and it doesn’t matter if they live on or off campus. Unfortunately, things like renting a car, maintaining a vehicle, travel costs for flying home, and health insurance do not qualify. Other uses for CHET account funds include up to $10,000 per year for elementary and secondary school tuition and a $10,000 lifetime maximum to pay off student loans.