SAVINGS BONDS

An easy strategy to preparing for your child’s education is to invest in bonds. There are bonds that are specially designed for education purposes, like the Series EE bonds. However, by purchasing a bond and matching up the maturity date to coincide with when your child will start school, you will have created a source of money that can be used for tuition, books, room and board, or whatever school costs you want to use that money for. Specifically, you would want to purchase a bond that matures the July or August before your child is due to start school.

When considering bonds, you will also want to invest in bonds that reinvest the interest that accrues, rather than in bonds that distribute their interest on a regular basis. Savings bonds and zero-coupon bonds are popular choices because they don’t have any interest to distribute before the bonds mature. Another advantage to the savings bonds is the fact that they are specifically designed to be used for education. Therefore, any gain that would normally be taxed in another investment is tax-exempt as long as the money is used for education purposes. Your child could use this money for books, or you could use it to pay tuition costs. As long as the money is used for a credible school cost, then the interest earned on the bond won’t be taxed. It’s important to note that there are some limitations to the interest being tax-exempt. If you plan on using a savings bond for education costs and are worried that you will be taxed on the interest, consult with your CPA, as they will be able to help you based upon your individual situation.