Where Should I Invest My Kids' College Cash?
Question of the month.
Carolyn Bigda

(MONEY Magazine) - QUESTION: I have a six-year-old son and a three-year-old son. Which is a better place to invest a little college money, the EE bond or the I bond?

ANSWER: The answer is C, none of the above.

With at least 12 years until your sons head to college, you can take more risk and aim for better returns with stocks. But it's understandable that you'd ask about savings bonds.

Series EE and I bonds offer tax benefits for college savers. With both you owe no taxes on the interest until you sell the bond, and even then you don't pay state or local income taxes. If you use the bond to pay for college, it's entirely tax-free as long as your income is low enough the year you cash it in. But those tax breaks don't make up for the bonds' low returns.

New Series EE bonds pay a fixed rate, currently 3.2%. I bonds have a variable rate tied to inflation. A state 529 plan is a better choice since it allows you to invest in a mix of stocks and bonds. Earnings grow tax deferred, and withdrawals are free of federal taxes until at least 2010. To learn more, go to savingforcollege.com. Top of page

YOUR E-MAIL ALERTS
Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.

Or, visit Popular Alerts for suggestions.
Manage alerts | What is this?
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.