US Savings Bonds

Posts Tagged ‘education’

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.

National Economic Education Video Competition

Using Savings Bonds for education with Educational IRA s and 529 plans

• While earnings on qualified U.S. Savings Bonds are tax exempt if the US Savings Bonds are redeemed to pay for qualified higher ducation expenses will the interest rate on a U.S. Savings Bond keep up with the rising costs of college?

If you are concerned that college costs will outpace the returns of U.S. Savings Bonds, consider this: 

Redeem qualified U.S. Savings Bonds and deposit the proceeds from the Savings Bonds into a Higher Education 529 Fund account.  

You can redeem qualified US Savings Bonds for education tax free. 

Who is Eligible to redeem US Savings Bonds for education tax free?

Modified adjusted gross income (AGI) Thresholds for Tax Free Redemptions of Series EE US Savings Bonds

Redeem Savings Bonds for Education (continued)

What is modified adjusted gross income (AGI)?

Modified AGI is composed of adjusted gross income (AGI) without taking into account the savings bond interest exclusion. The interest exclusion of the savings bond and phaseout, if any, is computed on IRS Form 8815 Exclusion of Interest From Series EE US Savings Bonds and Series I US Savings Bonds. 

Married filing separate taxpayers do not qualify for the interest exclusion of US Savings Bonds.

The 2005 and 2004 modified adjusted gross income (AGI) thresholds are: 

As long as the redemption proceeds (principal and interest) do not exceed the qualified higher education expenses incurred during that year, all of the redeemed interest is tax exempt if otherwise qualifying. 

If the redemption amount exceeds expenses paid, a pro rata calculation is performed to determine what portion of the interest will be taxable. 

Example:
Assume that Series EE US Savings Bonds are redeemed for $9,000 ($6,000 principal and $3,000 interest) and the qualified higher education expenses paid are $7,500. 

The taxpayer would be eligible to exclude $2,500 of interest ($3,000 x ($7,500 / $9,000)). $500 of the interest is taxable. 

The taxpayer is responsible for all interest record keeping and the filing of IRS Form 8815 to calculate the exclusion.