Savings Bonds

One tool that can be used to help with saving for your kid's college education is Education Bonds.

Since the 1930's US Savings Bonds have been a safe and secure way for consumers to invest their money with no loss to their principal and a guaranteed return on the investment. To use the Education Bonds for your children and their education the bonds must be EE or I Bonds issued January 1990 or later. At the time of purchase the intent of using the Education Bonds for your children does not have to be declared but there are certain specification that must be adhered to.

The person purchasing the Education Bonds for your children must be at least 24 years of age and must register the bonds in their name to take advantage of the tax benefits at a later date. Do not list the child as a co-owner, but children can be listed as a beneficiary and the education exclusion can still apply. If a married couple is purchasing the bonds a joint return must be filed and the tax documents must accurately report both the principal and the interest on the bonds to pay for the qualified educational expenses.

When using Education Bonds for your children and their education it is important to know what qualifies as a valid educational expense. Room and board does not qualify. However, as long as the post secondary institutions, colleges, universities, and various vocational schools participate in federally assisted programs such as a guaranteed student loan program, they should be a qualifying institution and tuition and fees will qualify as the appropriate expenses.

Investors are currently scrambling trying to find safe ways of diversifying their portfolios and to earn a return for their investments. Treasury direct bonds are an option worth considering after you educated yourself on the advantages of this type of investment.

Treasury direct bonds have been a strong investment strategy since 1935.President Franklin D. Roosevelt signed legislation creating the first "baby bond" and that act had prompted large participation by Americans living during that time. United States Savings Bonds are basically a way for the government to borrow money from their citizens by offering a guaranteed rate of return over a long period of time for the loan. The act of purchasing a treasury direct bond is a way to help finance the needs of the government.

The advantages of treasury direct bonds are:

• Investors are guaranteed a rate of return for their investment
• The rate of returned is competitive to the market
• The principal investment is backed by the U.S. government so your money will not lose value
• The federal taxes due on treasury direct bond do not need to be paid until the bond is redeemed
• If the value of a redeemed bond is used to pay for qualifying educational expenses, federal taxes can be waived
• Since treasury direct bonds are a federal investment, they are not subject to state or local tax penalties
• Treasury direct bonds are super easy to buy

The disadvantages of treasury direct bonds are:

• To reap the full reward of the investment may take up to thirty years of waiting for the bond to mature
• There are restrictions and penalties associated with redeeming treasure bonds too early
• Depending on the type of bond you purchase, the rate of return may not exceed the average annual inflation rate of 3% thus mitigating the interest gains
• The maximum annual purchase for individuals is capped at EE bonds is $15,000 and $30,000 for I series bonds
• To qualify for the educational tax break when redeeming treasury direct bonds, your income must be below a certain level

Understanding bonds and bond prices is an essential aspect of making this type of investment. There are a number of elements to take into consideration when choosing bonds to purchase, but one that stands out is looking at what they are correlated to and how this affects your investment .

Making...

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