Other Education Savings Options

Personal investments

  • How it works – You can earmark a portfolio of your personal investments for "college savings."
  • Flexibility – Your personal assets can be used for any purpose, and there are no "contribution limits" because it's totally up to you how you plan to use them. But since assets may be earmarked for multiple goals, it may be difficult to identify exactly how much you've saved for education. But then again, if you don't end up using them for education, you can give them as a gift or use them for another purpose.
  • Taxes – There aren't any tax benefits though. All earnings are taxed at the account owner's regular rate. 
  • Financial aid – Personal investments are considered the assets of the account owner (e.g., the parent or parents), but the parent's assets have less impact on financial aid than the student's assets or the parent's income.

Savings bonds

  • What is it? – A savings bond is not a type of account. It's a type of investment. Typically, savings bonds are issued by the U.S. Department of the Treasury, so they are backed by the full faith and credit of the U.S. government. It works like this: You buy a bond, with a guaranteed – but limited – interest rate. Then, when the bond matures, it's redeemed for that exact amount. 
  • Taxes – The earnings from the bond don't have to be claimed as income for income tax purposes, as long as the proceeds are used for a qualified education expense – with certain restrictions. Upon maturity, interest on any bond redeemed is subject to federal income tax if not used for qualified education expenses in that year. However, income limits may restrict your ability to receive tax-free income.
  • Financial aid – For financial aid purposes, savings bonds are considered the account owner's (e.g., the parent's) asset, which means they have less impact on financial aid than the student's assets or the parent's income.
  • Contribution limit – Contributions are limited to $10,000 per year, per Social Security number and bond type.1

Zero coupon bonds

  • What is it? – A zero coupon bond is a type of investment, but it doesn’t pay interest. Instead, a zero coupon bond is sold at a discount. Then, if you hold the bond until maturity, it's guaranteed to be redeemed at face value, which is typically more than the purchase price. Zero coupon bonds may be of interest for college savings because they provide a known return on investment on a predetermined date and can be structured to mature right before a child or grandchild goes to college. 
  • Flexibility – Zero coupons are flexible too. You can "earmark" a bond or series of bonds for college, which means if it turns out you don't need the earnings for a child's education, you don't have to use them for that purpose. And there are no penalties or tax consequences related to how to use the bonds.
  • Taxes – If you purchase a "municipal" zero coupon bond from a state or city, they may be tax free. Other types of zero coupon bonds are subject to federal income tax.
  • Financial aid - When it comes to financial aid, they are considered owner assets (e.g., parent), so have less impact than the student's assets or the parent's income.

How we can help

Your financial advisor can help you learn more about your options and put together a real strategy.

Important Information:

1 Edward Jones does not offer savings bonds. $10,000 limit applies separately to electronic Series EE and I bonds. $5,000 limit applies to paper Series I bonds.

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