US Savings Bonds

Archive for May, 2010

Question: Best savings fund for children.?

When it comes to savings for my kids(ages 5 and 2) i have no idea where to begin. Something that once they are ready to go to college they have the money for it. Or perhaps if they would like to just start a life soon after highschool they have the funds for that also. Something that will grow very well throughout the years. We have 12 years before our first is ready to go down that path so its pretty good time frame. What are Mutual Funds, 529 plans, Savings Bonds, all of that? I have no idea! I thought about the gerber plan but i am not sure its the best thing. The help of those who already have these options would be appreciated as well as those who have the smarts about them. Thanx in advance!
i will get the 1000 and i will start something after that if its the best! as for how much i would like to have after the 12 years, as much as possible! it would be great if i could have at least 20 grand but more would be awesome.

Answer: A good 529 plan is the way to go if it is college that you are saving toward. These plans are tax favored. The interest or dividends build up tax free. You can invest in stock funds or money markets. Over time, stocks historically have proved to beat bonds and bank interest. No one knows what the future holds, but over the next 12 years they will likely outperform as well. Your state may have a 529 plan or you can choose from other states. Invest monthly and it will grow. Most plans allow as little as $50 per month.

Life insurance is not a good way to save for college.
The “Gerber Plan” you are talking about is probably life insurance and I would not recommend a mass market life product. Life insurance for your children is not as important as life insurance on yourself. You and your spouse should carry life to cover the cost of raising the kids if you die. Term insurance is less expensive and if you are in good health can get $500,000 for as little as $25 a month depending on age etc. If you do want to buy life insurance for kids, buy a small policy that would cover burial costs but allows for additional purchase later regardless of health. Fraternals like Woodmen of the World often have the added bonus of free or low cost summer camps for kids if they have a policy.

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Question: Savings Bonds and college?

Hi, I bought some EE Savings Bonds meant for my kids’ college fund. They are under my name. I thought I can get tax-free interest when I apply them for college expenses. However, since my income exceeded the specified limit, there is no incentive for me to cash them out for education purposes.

So should I wait until my kids are out of college before cashing them out? So that their financial aids applications would not be adversely affected? Thanks for your help?

Answer: Yes, and your kids’ financial aid applications will be affected whether you keep the bonds or sell them.

A) Keep the bonds and hold them until your kids graduate from college. Put the interest income from the EE Savings Bonds into self-directed IRA’s in each child’s name. That way, the income from the bond interest can grow tax-deferred while your kids are in school. Once the kids graduate, the kids can cash out their IRA’s and use the money to pay for education expenses, and not get hit with taxes. Sell the bonds and, assuming you have them in a tax-deferred account, use the proceeds to pay your kids remaining school expenses.

B) If you claim your kids as dependents on your taxes, your kids’ financial aid package will be affected based on your income level, and investment assets. Sallie Mae takes this into consideration when processing student loan apps – the same information is used in determining financial aid (i.e., Pell grants, Stafford Loans, etc.) Talk to a financial aid counselor with your kids’ school – they should give you the lowdown on what’s considered when applying for financial aid.

Good luck….

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Question: Are US Savings Bonds still safe to purchase?

I know it might sound silly, but…
Back in the day my grandma always got us one for each holiday, birthday and so on. When I cashed mine in at 27 I was able to put the down on my first house. I just do not know if they are as safe as they used to be in this economy . I want to start this same tradition with my little ones, but I am a little hesitant. Any thoughts?

Answer: Very much so. The safest investment/purchase you can make. They are backed by the full faith and credit of the government.

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