US Savings Bonds

Archive for the ‘Savings Bonds for Education’ Category

Question: Best way to set aside $1000 for each grandchild?

I just inherited a small amount of money, and want to set aside $1000 for each of my grandchildren. It must be done in some manner that their parents CAN NOT access the money, and the children can’t touch it until they are 18 if they go on to higher education or 21 if they don’t go to college or tech school. A ROTH IRA is out because they MUST go to college to get the money with that one. Naturally I want the money to have as high a return on the investment as possible, but I don’t want the kids to have to pay a bunch of tax when they cash it out. Someone suggested Savings Bonds, but those are something that can’t be restricted from being accessed by their parents or before the desired age. Suggestions???? What have YOU done?

Answer: Just set up a basic savings account in your name and the childs name and you can state that the child isn’t allowed to access the account (Tell them at the bank) until he/she is 18/21. This way the parents can’t touch the account, because their names aren’t on it. My grandparents did this for us. Call your local bank/credit union and check it out. This way it would be gaining interest until they reach the allotted age also.

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Coverdell Education Savings Account or ESA for short has an advantage when US Savings Bonds are concerned. This section of Us Savings Bonds Information website discusses Coverdell Education savings accounts and US Savings Bonds. 

What is a Coverdell Education Savings Account?

A Coverdell Education Savings Account (ESA) is an account created exclusively for the purpose of paying the qualified education expenses of a child who is designated as the beneficiary of the ESA. 

For whom may a Coverdell Education Savings Account be established?

A Coverdell education savings account ESA may be established for the benefit of any child under age 18. 

Contributions to the Coverdell education savings account ESA will not be accepted after the child reaches his/her 18th birthday. 

This age limit does not apply to special needs students. A Coverdell education savings account ESA may also be established for a family member of an Coverdell education savings account ESA beneficiary to receive a rollover or transfer of the beneficiary’s Coverdell education savings account ESA. 

The family member must be under age 30 unless the transfer is due to the beneficiary’ s death, divorce or a court-ordered separation. 

This age limit does not apply if the family member is a special needs student. 

When may Contributions to a Coverdell Education Savings Account ESA begin?

Starting in 2002, Coverdell Education Savings Account ESA Contributions for a year may be made any time from the first day of the year until the due date (without extensions) of the contributor’s federal income tax return for the year.

How to use U. S. Savings Bonds to Fund a 529 plan

For qualified U. S. Savings Bonds issued after 1989, interest accrued may be federal income tax exempt, if the U. S. savings bond is redeemed to pay qualified higher education expenses.

For purposes of this tax exclusion, qualified higher education expenses include tuition, Contributions to 529 Plans and expenses for certain fees.

In order for you to benefit from the U. S. Savings Bonds tax exemption, make sure you complete each of these steps:

Note:

Redemption and the deposit of the savings bond redemption proceeds into a Higher Education 529 Fund must occur within the same calendar year.