Graduation

 

reach college age. Proper knowledge of the law will enable you to take maximum advantage of what's available to you.

"Fortunately for you, you have years to save, and that's where I'd like to focus for the next few minutes.

"There are a number of savings vehicles appropriate for creating a college fund," Roy continued. "U.S. Savings Bonds offer several advantages: They are guaranteed by the federal government; the interest rate is adjusted to keep you from being left behind by rising rates; and they can be purchased in denominations as small as twenty-five dollars.

"In addition to those benefits, some Savings Bonds may also receive preferential tax treatment. When the bonds are redeemed, if the adjusted gross income on the parents' joint return is less than about seventy-six thousand dollars, the interest earned is tax-free. I should mention that the threshold has been indexed to the inflation rate since 1990 . . . oh, and that the threshold is just under fifty-one thousand dollars for single or head-of-household filers. Over those limits, the tax break is gradually phased out.

"To get the tax break you must be age twenty-four or older when you buy the bonds, so obviously parents should register the bonds in their own names, not their child's.

"Even if you don't think you'll qualify for that tax break, U.S. Savings Bonds aren't a bad idea. They offer the three benefits I spoke of, and they're also exempt from state and local income taxes. Moreover, if you buy them in your child's name, an acceptable practice if you can't qualify for the tax break, and you redeem them after the child turns fourteen, the interest will be taxed at your child's rate. Unless he or she has become a rock star, that rate will be lower than your own.

"That last point is important enough to repeat—