Saving for College in Connecticut

I've got two nieces, my brother's kids. When they were first born, I gave them toys for their birthdays and Christmas. I quickly realized that these kids were getting so many toys that they had no idea what to do with it all. What do I mean by "so many toys"? Well, ten times more than I ever got as a kid!

I didn't like the idea of wasting money on toys that are quickly discarded; I never even knew whether the kids would play with the toys I sent because I don't visit them very often. At the same time, I remember that when I was a kid, especially as I grew older, I envied the kids whose relatives had given them gifts of savings bonds.

So I quickly switched over to giving my nieces savings bonds year after year, for birthdays and Christmas. Kind of a stodgy gift, but I think they'll like it when the bonds reach maturity.

A couple of years ago, I decided contributing to a college fund for the kids made sense. I could "afford" it, and it bothered me that my brother had not set up a college savings fund of some sort. I opened a Connecticut Higher Education Trust (CHET) account for each of my nieces. It's a 529 college savings plan. I intend to contribute to the accounts every year, as long as I can, until my nieces go to college (assuming they go; the beauty of CHET is that if the current beneficiary never goes to college, you can reset the beneficiary to someone else).

Up until this year, the only tax advantage to a CHET account is that the gains grow tax-deferred, and earnings that go to pay for higher education are tax-free. Nice.

This year, Connecticut gives people a bigger incentive to save - they made contributions to CHET accounts tax deductible. So you may be able to deduct contributions to CHET accounts (I'm assuming this only applies if you itemize your deductions, which only makes sense if your itemized deductions add up to more than the standard deduction).

Now the really great thing is that my brother opened a CHET account for each of my nieces this year - yesterday, in fact! I like to think it was due to my good example, but I suspect it was the tax deduction that got him there!