Savings bonds are an effective way to save for children's college costs
Parents preparing for a newborn have to make many preparations for their new arrival. They need to get the crib and nursery ready, make sure they have plenty of clothes and diapers on hand, and some forward-thinking parents are even setting up a college funding plan for their newborn.
While this may seem extreme, the fact is that it is never too early to start thinking about a child's educational future. College costs have consistently climbed in the last 10 years, and there is little reason to expect the trend will level off in the near future. In fact, economists estimate that collegiate expenses will climb at a rate of five percent annually; meaning that by the year 2022, a year at a private college, including tuition, room and board could cost $69,940.
As startling as this figure is, the earlier parents start saving for these costs, the easier affording college will be.
One reliable way to save money for a child's education is through an Education and Savings Bond. These bonds, called series EE and I Bonds, not only allow parents to earn interest on their investment, but enables qualifying parents to exclude the interest income from their taxes when the bond is redeemed.
To make the most of this program, parents must fulfill several criteria:
Parent's Eligibility: The parent must be 24 years or older, and the bond must be in the name of either or both of the parents, not in the child's name. (However, the child can be named as a beneficiary.) If the qualifying parent is married, they must file a joint tax return.
Eligible Institutions: Most post-secondary institutions such as colleges, universities and vocational schools must meet certain federal assistance standards. (As a general rule, institutions that qualify for the guaranteed student loan program will also qualify for the bond program.)
Qualified expenses: Only expenses such as tuition and lab fees are eligible under the program. Books, room and board and other living expenses do not qualify.
For parents starting a college education fund for their children, Education and Savings Bonds could be an effective way to start.