Parents worried about the rising cost of higher education take note: There are several tax-favored ways available to fund your child’s future education costs. 

Series EE Savings Bonds are one tax-wise way you can help defray college expenses. There are stipulations for how the funds may be used, and you must purchase the bonds in your own name (not your child’s) or jointly with your spouse. You don’t have to report the interest on the bonds for federal tax purposes until the bonds are cashed in, and interest on “qualified” Series EE (and Series I) bonds may be exempt from federal tax if the bond proceeds are used for qualified college expenses; however, if your modified adjusted gross income (MAGI) exceeds certain amounts, the exemption is phased out.

Qualified Tuition Programs, or 529 Plans, provide another great opportunity to provide for your child’s future higher education expenses. 529 plans are established by state governments or private institutions and distributions are tax-free if funds are used to pay “qualified higher education expenses.” This can include up to $10,000 in tuition for an elementary or secondary school.

Coverdell Education Savings Accounts (ESAs) are another avenue that may help provide needed funds for college expenses, allowing for contributions of up to $2,000 for each child under age 18. However, it’s important to note there are phase-out rules once adjusted gross income (AGI) is over $190,000 for married taxpayers filing jointly or $95,000 for single taxpayers. Where income limit is an issue, the child may also contribute into his or her own account.

For more detail on each of these tax-favored ways to save for higher education, visit the DunlapSLK website.

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Once a U.S. Savings Bond is purchased and matures, how does its owner cash it in?