College Savings Bond

College savings bonds are tax-exempt, zero-coupon bonds issued by a state to help families of that state save for future college costs. Thousands of families have invested in these education savings bonds to prepare for that overwhelming expense.

This investment product is structured as a zero-coupon bond and pays no interest until maturity.  The buyer purchases the us savings bond at a discount so that the original principal amount plus the accrued interest equals $5,000 at maturity.

Taxing College Savings Bond Gains

These are general obligation bonds of the state of issuance.  They are backed by the state’s full faith and credit. All interest earned is considered both federal and state tax free for the residents of that state. Any person purchasing one of these bonds from out of state would in fact be getting a tax deferred bond where it is still federally tax free but not state.

College vs US Savings Bonds

College savings bonds should not be confused with U.S. savings bonds. Those investments are offered by the Treasury and are backed by the U.S. government. They are also subject to federal income tax, though some education exclusions may apply.

In many cases, these items are purchased as a savings bond gift from a relative to a minor to help with the cost of higher education. Both the U.S. savings bond and the college savings bond can be used for this purpose.

College Savings Bond Financial Planner Help

Not all states offer the college savings bond. If you have questions about whether your state offers this program or whether the U.S. savings bond may make more sense for you, please consult with a college bond savings financial professional.