I Savings Bonds
529 plans aren't the only way to save for college and reap tax advantages. In fact, there's another way to
save for college that involves a U.S. government-backed investment: I Savings Bonds.
I Series savings bonds are unique savings bonds. They are issued at face value and pay and interest rate
plus added interest to cover the rate of inflation. So these bonds always beat inflation and are backed by
the U.S. government.
Even better, the IRS offers tax incentives for I Bonds (and series EE bonds). You won't owe federal income
taxes on your interest earnings if you use the money to pay for college. You have to meet certain qualifications, including income
limits. (continued below)
For I Bonds, "qualified education expenses" include tuition and fees but not books and room and board.
Another advantage of I Bonds over 529 plans as you don't have to name the beneficiary. You could use it to
pay for your own education or your kid's education.
There is one big caveat: you may want to steer clear of savings bonds if you or your child goes to college
within the next 5 years. Savings bonds can't be cashed in for 1 year, and you pay a 3 month interest penalty
for cashing them in within 5 years.
You can buy I Bonds at TreasuryDirect.gov.