How to Open a 529 Plan in Connecticut

Connecticut offers a robust 529 college savings program called the Connecticut Higher Education Trust (CHET). Managed by Fidelity Investments, CHET is open to both residents and nonresidents. Here is an easy-to-follow guide for parents and grandparents of education-bound children on opening a 529 plan in Connecticut. 

1. Choose a 529 Plan

A 529 plan is a tax-advantaged savings tool designed to help families save for higher education expenses. These college savings plans provide various benefits, including tax-free contributions, withdrawals, and investment growth. 529 Plans can be opened by anyone looking to help a child start saving for college, including parents, grandparents, other family members, and friends. 

Understanding the Connecticut 529 Plan

The CHET 529 plan provides several benefits for Connecticut residents and tax-payers:

• Tax Advantages: Connecticut taxpayers can receive a state income tax deduction of up to $5,000 if filing individually and $10,000 if filing jointly on contributions made to their CHET account each year. 
• Flexible Use of Funds: Funds can be used for various qualified education expenses at any accredited university, college, or vocational school in the United States and many international schools. The funds in the CHET 529 plan do not need to be used at a college in the state of Connecticut. 
• Investment Choices and Performance: You can choose between an age-based investment strategy or customized investments depending on your specific investment goals.

Considering Other State’s 529 Plans

You don’t need to be a resident of Connecticut to open a CHET 529 Plan, and Connecticut residents can also open 529 plans in other states. Browse our state-by-state plan finder to learn more about various state plans’ offerings.

Depending on your financial situation and goals, another state’s plan may be right for your family. However, if you’re a Connecticut resident, consider the tax implications of using another state’s plan that may not provide the same tax deduction opportunities in Connecticut as the CHET plan.

If you believe a prepaid tuition plan is right for you, the Private College 529 Plan is a national option to consider. Connecticut no longer has a state-level prepaid tuition plan as part of its 529 options, but the Private College 529 Plan includes a prepaid tuition option at almost 300 private colleges nationwide. This alternative plan does include contribution minimums between $25 and $500 per month and does not provide state tax deductions. 

2. Determine the Type of 529 Plan Account

If you’ve determined that a 529 plan is the right savings tool for your family, it’s time to decide which account is most beneficial. There are 3 types of CHET accounts to consider

• Direct-Sold Plan: These are approved and monitored by the state and are managed by Fidelity, which is called CHET Direct. These plans have no sales fees; however, you must research which investment options are best suited for your family. 
• Advisor-Sold Plan: These are sold through financial advisors, and you receive the benefit of sage investment advice from a professional, but you may pay a fee for this service. 
• ABLE CT: ABLE accounts allow Americans with disabilities to save for college with 529 tax advantages without impacting eligibility for Medicaid, supplemental security income, or other public benefits. 

While opening your 529 account, you must also determine your situation’s best account control structure. You can open a 529 plan as an individual or custodial account owner. The differences between the 2 control structures determine who controls the account while the beneficiary is a minor and how the account impacts need-based financial aid. 

• Individual accounts are more common. The adult is the account owner, and the student is a beneficiary. 
• Custodial accounts are similar; however, the student is both the beneficiary and the account owner. These require an adult account custodian until the student comes of age, and custodians have limited rights on the account. 

3. Complete the 529 Plan Application

You’ve chosen the type of 529 plan that is best for your family. Now, complete the application. 

Before filling out forms, you must choose the account’s beneficiary—typically a child or grandchild you expect to attend college. Remember that you can change the beneficiary at a later date if needed. You’ll need to collect the required information for yourself and the beneficiary, including date of birth, social security or identification numbers, and location information. 

For a CHET 529 plan, there are a few supplemental forms and application supporting documents to retain for your records. From here, you can fill out the application.

4. Fund the 529 Plan

Next is determining how (and how much) to fund your new CHET 529 Plan. CHET plans do not require an annual fee or initial contribution to open. So, you can start with any amount based on your budget and goals. There are various methods of how to contribute to your new 529 plan:

• Lump Sum: Make a one-time contribution.
• Automatic Contributions: Set up recurring automatic contributions, with a minimum of $15 monthly or $45 quarterly. 
• Gifts from Family and Friends: Invite others to contribute to your child’s education journey.

While there are no annual contribution limits for 529 plans, the maximum lifetime contribution per account is currently $550,000. Also, the annual contributions that can be tax-deducted in a tax year are capped at $5,000 if filing individually and $10,000 if filing jointly. However, if you exceed this amount in a given year, you can carry over the excess contribution amount for up to the next 5 taxable years. 

5. Choose Investments for Your 529 Plan

During the application process, you’ll decide which investments will make up your fund. 529 accounts are investment accounts, so any contribution to the account is allocated to the investment option or options you’ve selected. The value of the 529 plan will fluctuate based on the performance of these investment options. For the CHET 529 plans, there are 2 investment options:

Age-Based Portfolios

You can have Fidelity manage your asset allocation by choosing an age-based strategy. This strategy is based on the beneficiary’s birth year and automatically adjusts the asset allocation to become more conservative as the beneficiary approaches college age. The beneficiary’s birth year will determine the Age-Based portfolio you’ll invest in.

Custom Portfolios

You also have the option to select a custom strategy from portfolios that fall into three categories:

• Static: A combination of equity, fixed income, and cash based on your preferences that remains the same over time.
• Individual Funds: Equity, fixed income, bank deposit, and money market options.
• Age-Based: A combination of equity, fixed income, and cash that adjusts over time.

Small program management fees and expenses, primarily based on the Federal Funds Target Rate, apply to investment options that include Fidelity funds, index funds, mutual funds, and bank deposit portfolios. These fees range from 0.10% to 0.95% annually. 

Managing and Using Your 529 Plan Funds

If you’ve opened a Connecticut 529 plan, you’re already thinking about the future, so you’re well on your way to paving a successful education path for your child or grandchild. As you continue the journey, it’s important to keep an eye on your investment and plan for the eventual distribution of the funds. 

Monitoring Investment Performance and Changing Investment Options 

You can regularly review your investments and adjust as needed through your Fidelity portal. You can also find an overview of all fund performance over time to determine if you’d like to change your investment options.  

Updating Beneficiary Information

As life goes on, changes may need to occur related to the beneficiary of your account. As the account owner, you can change the beneficiary of your account or the beneficiary’s information. You can even open an account for a child before they are born, in which case you’ll need to update their information with social security, name, and date of birth information at a later time. 

Withdrawal Procedures 

Understand how to access funds when it’s time to pay for educational expenses. Here are some great tips on withdrawing money from your 529 account tax-free. You can even pay universities and colleges directly from your CHET account. 

Qualified Educational Expenses and Tax Implications

Learn what expenses are tax-free by matching your plan distributions with qualified educational expenses. Qualified college costs include tuition, room and board, and even payment of student loans and other financial aid. If you withdraw for non-qualified expenses, you could be subject to regular federal tax and state tax rates and a penalty of up to 10% on earnings on the investments. 

Opening a 529 plan is a smart move for your child’s future. Take advantage of CHET’s tax benefits, flexibility, and investment options. Start your saving for college journey today by enrolling in Connecticut’s 529 Plan and choosing the investment options that fit your family’s needs.