Educational Savings Bond Program
U.S. savings bonds offer a fixed rate of interest over a fixed period of time, with face values ranging from $25 to $10,000. Interest payments are accrued over the life of the bond and paid out with the principal at maturity. Savings bonds are not subject to state and local taxes, and federal taxes are deferred until redemption. Under an educational savings bond program, if the income earned from the bond is used to pay for qualified education expenses in the same calendar year as the bond matures for the bondholder, her spouse, or any dependents, the interest income will be tax exempt. Only qualified series EE bonds issued after 1989 or series I bonds are eligible under an educational savings bond program.
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Comparison of Educational Savings Plans |
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CESAs |
529 Plans |
UGMA/UTMA Accounts |
Educational Savings Bonds |
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Contributions |
After-tax dollars, must be cash contribution |
After-tax dollars, must be cash contribution |
After-tax dollars, gifts are irrevocable, but can be made in cash or fully-paid securities |
Purchase of bond of a fixed value |
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Withdrawals |
Tax-free if used for educational expenses and beneficiary under age 30 |
Earnings are tax-free if used for educational expenses |
Earnings are taxed at parent’s rate after $2,000, but no penalty for use of funds for non-educational expenses |
At redemption, interest income is tax-free if used for educational expenses in the same calendar year the bond matures |
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Contributors | ||||