What are the best options available for investing in my child’s education? This is the critical question that many inquisitive parents in today’s society mull over repeatedly in an effort to provide better lives for their children. Unfortunately, for disillusioned parents everywhere, the most common answer is a diverse investment portfolio. Yes, they are many different investment options to choose from including a combination of stocks, mutual funds, certificates of deposit, education IRAs, state sponsored education investment programs (529 plans), and even U.S. Savings Bonds. All provide unique options and attractive features that can be tailored to individual investment plans.
However, only one option provides a safe, secure investment backed by the United States government. This is the U.S. Savings bond, an investment specifically designed to never decrease in value and provide unique tax advantages for those seeking to further their education. Two types of U.S. Savings Bonds are suitable for your child’s investment portfolio; these are EE and I bonds, which are available in electronic and paper forms.
They have many advantages that include state and local tax exemptions, the ability to earn interest monthly which compounds semi-annually, and the option to put bonds in your name as an owner or co-owner. Just remember, to qualify for the exclusion from federal tax, bonds should be registered in the parents name or the child’s name when not expecting to meet income requirements. These tax savings can improve the overall yield of your investment.
Savings Bonds are actually made for people who have relatively small sums of money to invest. So plan on using EE and I bonds as a supplement to your child’s education savings portfolio when allocating funds. As of January 1, 2008, U.S. Savings Bonds will have an annual limitation of $5,000 per Social Security Number and a total of $20,000 per individual regarding bond types. Basically, that’s $5,000 apiece for EE and I bonds, with electronic and paper forms being counted as separate categories. Now I do have to alert you to a couple of technical details. When paper bonds are issued in co-owner form, the limit only applies to the first named co-owner and all limits are based on the issue price of each bond as well.
Series EE and I bonds are two different types of investments in themselves. EE bonds are based on a fixed rate, which endures for the life of each bond based on the period purchased. I bonds have a fixed rate combined with a semiannual inflation rate. While an EE bonds interest rate is more or less set in stone, an I bonds rate varies based on the annualized rate of inflation measured by the Consumer Price Index for all Urban Consumers. Both types of savings bonds have a three month interest penalty for bonds held less than five years and they both can only accrue interest during a thirty year lifespan.
U.S. Savings bonds are a first-rate way for parents to supplement their child’s investment portfolio. Not only are EE and I bonds a safe and secure investment without risk, but the treasury direct website (www.treasurydirect.gov) offers various programs and reports to help guide you through the process. More or less, you can literally watch your investment grow by downloading the “Savings Bond Wizard” program or even analyze various trends concerning interest rates by viewing on-line reports. When reviewing options to invest in your child’s future, buying a U.S. Savings Bond should be at the top of everyone’s list.