Overview Of College Savings Bonds
Let’s start off by understanding what savings bonds are in the first place. Simply put, Savings bonds are nothing by debt instruments that are issued by the U.S. Government, actually the Treasury department to be more precise, to pay for the ever increasing borrowing needs of the U.S.
So what does savings bond have to do with paying for college or school? The debt explosion that continues to transpire in the United States and abroad have many young people wondering about their education and in particular their college prospects or post-secondary degrees. With the cost of a college education increasing each day, it is important to plan and start saving to pay for college very early. There exist a number of options for families looking to establish a college fund and save for their children’s education. Concerned families hew close to the most established accounts – namely, those associated with 529 prepaid and savings plans – in order to stave off the worst of the recession’s continuing effects and prepare for their children’s futures.
Many families invest in savings bonds – particularly Series I and EE savings bonds that are worth their value in tax-deferred growth and exclusion for 30 or more years as one of the many financial instruments available to deposit large sums of money that pays you back in interest over time. These savings bonds offer students and their concerned families the ability to deposit sums of money without interference from state or federal taxes. As the savings accrue, the student potentially saves hundreds of thousands of dollars for her or his college education at a later time.
Education Savings Bonds Features
Those who invest in these savings bonds can contribute as much as $15,000 by buying Series EE savings bonds, or $30,000 in the case of Series I bonds. Important income limitations prevent investors from injecting too much cash into these bonds. Moreover, married couples who file jointly may suffer the loss of their tax benefits if the adjusted gross income finds itself in the $81,100-$111,100 range. Single taxpayers will lose nearly $54,100-$69,100 in tax benefits.
How does Savings Bonds Impact Financial Aid?
Purchasing the bonds requires that the beneficiary or recipient be at least 24 years old. This serves the U.S. Department of Education and the United States in general by ensuring that the beneficiary possesses a sound mind and the maturity to accept the responsibility for bonds. By contrast, if the bond owner is a parent, then the bond is considered under all applicable laws and the consequences acceding therefrom a parental asset, making said parent and bond owner liable, not the student. If the bond’s proceeds are used for the parent’s education, then the bond is considered a student asset.
The U.S. Department of Education distinguishes between student and parent assets in this fashion, a system designed by the Internal Revenue Service and U.S. Congress in order to better serve families, their students, and the education system in general.
Bonds as Secure Investments
One of the few drawbacks to a savings bond is the fact that beneficiaries and bondholders cannot access the same level of flexibility that you have in 529 plans. On the other hand, this lack of flexibility and all the laws governing savings bonds help make them better, sounder investment options. With the interest rates on Series I bonds indexed to the current inflation rates, 529 plans remain largely exempt from the chronic instability that would otherwise threaten their financial integrity. This counts as an in-built protective measure that exists thanks to the steady, but never fluctuating rate of inflation in the United States.
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