Do’s and Don’ts of College Planning – U.S. Savings Bonds for College

Posted by on May 11, 2016 in Certified Financial Planner Boise ID, Certified Senior Advisor Boise ID, Financial Advisor Boise ID, Financial Planner Boise ID, Financial Planners Boise ID, Financial Planning Consultant Boise ID, Financial Services Advisors Boise ID, Peggy's Pearls | Comments Off on Do’s and Don’ts of College Planning – U.S. Savings Bonds for College

Double the money!  Another college savings option with relatively low risk is the U. S. Savings Bonds.  These types of bonds are usually purchased and redeemed at your bank.  They are issued in denominations of $50 to $10,000.  For example a $50 bond would cost you $25.

The typical bond issue is Series EE.  The earnings are usually tax deferred for Federal and tax free for state.  Some post 1989 EE bonds may be redeemed federally tax free if used for qualified higher education.    To be federally tax free, the bond owner must be at least 24 years old before the bond’s issue date.  Bonds purchased for grandchildren in the grandchild’s name usually won’t qualify for this exemption.

Parents have a restriction of income for the bonds to be tax free.  If you are married filing jointly, your phase out range for tax exemption of savings bonds for education currently is from $113,950 to $143,950.  As head of household, the range is $76,000 to $91,000.

However, giving a series EE bond to grandchildren may build a nice fund for the child.  There is more flexibility in how the money can be spent – without penalty.  And anybody can give a gift of a bond.   Parents may encourage gifts of this kind to keep children from being over indulged with the latest, greatest toys.

The series EE bond has a 20 year cycle.  It can be redeemed before the 20 year period.  However, if you redeem within the first 5 years, you will have a penalty of 3 months interest – similar to a Certificate of Deposit.  To determine the value of your Series EE bond you can go to the bond calculator at www.treasurydirect.gov.