What Kinds of Savings Bonds Should I Buy for College Savings?
When it comes to saving for college expenses, you can choose one of many different paths to get the job done. One path involves investing in savings bonds and then using the money from them to pay for your college expenses. To make sure that you get the tax break that comes with this strategy, you have to invest in the right bonds.
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Using Bonds for Education Expenses
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With this option, you can buy savings bonds with the intention of using them for college expenses in the future. Then, when you need money to pay for your own or a child's college education, you can cash in the bonds. The money that you get from cashing in the savings bonds can be used for educational expenses without paying any taxes on the earnings from the bonds. By comparison, when you cash in savings bonds for non-educational expenses, you have to pay taxes on the interest earned.
Types of Bonds
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When you want to participate in this program, you can buy two different types of savings bonds from the United States Treasury. One type of bond that you can buy is the Series EE bond. The second kind of savings bond is the I bond. With the Series EE bond, you earn a regular rate of return on your bond over the course of 30 years. With Series I bonds, you earn a flat rate and then another rate that is equal to the amount of inflation.
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Bonds for Qualified Education Expenses
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When you buy Series EE and I bonds, you can eventually use them to pay for qualified educational expenses. These expenses could fall into one of several categories. For example, you can use the money to pay for tuition at an eligible secondary institution. You can also use the money to put towards a prepaid tuition program. You cannot use this money to pay for books, room and board or any other expenses that you incur for education.
Qualifications
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To be able to take advantage of this program, you have to meet some specific qualifications. For example, you have to be at least 24 years old in the month in which you buy the savings bonds. You also have to use the bonds to pay for your own education, the education of a spouse or the education of your child. You also have to redeem the savings bonds in the same year that you incur the education expenses.
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