AT ONE TIME, it was popular to buy savings bonds to pay for a child’s college costs. These days, you don’t hear savings bonds discussed that often, partly because 529s and Coverdells seem like better alternatives and partly because yields on savings bond are now so modest. There’s more about savings bonds elsewhere in this guide and also at SavingsBonds.gov.
Still, for those who qualify, savings bonds can be a low-risk, tax-free way to save for college. You can cash in savings bonds and avoid income taxes on the accumulated interest if you use the money for tuition and fees at a qualified educational institution for yourself, your spouse or your child. In 2020, this tax break phases out if you are married filing jointly with modified adjusted gross income between $123,550 and $153,550. For other taxpayers, the phaseout range is $82,350 to $97,350. In 2021, the phaseout ranges are $124,800 to $154,800 for couples and $83,200 to $98,200 for everybody else.
To get the tax break, there are a few other conditions. The bonds need to be owned by one or both parents and you need to have been at least 24 years old when you bought the bonds. The bonds need to be either EE bonds issued after 1989 or Series I bonds. To qualify for the tax break, you also can’t be married but filing separate tax returns.
Next: Financial Aid
Previous: Retirement Accounts