What You Should Know About Illinois College Savings BondsCollege savings bonds are actually Series EE/E and Series I savings bonds fully guaranteed by the U.S. government. While the returns for such bonds are small, they are risk-free and tax-free under certain conditions. Illinois College Savings Bonds are examples of such secured investments. The college savings bonds issued by Illinois are general obligation bonds that are tax-exempt from both federal and state income taxes and zero-coupon bonds. These long-term investment bonds are earmarked specifically for college tuition and other expenses and have been sold in Illinois since 1988 every fall. Some tips in getting Illinois College Savings Bonds:
Zero-coupon bonds mean it only pays interest upon maturity and that each bond is sold at a discount so that upon maturity they attain a total value of $5,000, including principal and interest. In other words, the longer the maturity term of the bond, the lower the initial investment is. To illustrate, bonds valued at $ 5,000 and maturing in 5 years will have a $4,500 sale price and maturity value of $5,000. At 10 years, the sale price is $3,650. All investors in the Illinois College Savings Bonds are eligible for a Bonus Incentive Grant equal to $20 for each year the bond is kept with the state, i.e. 17-year old bonds are granted $340 additional. For funding higher education, the rate per year may rise to $60 a year. However, while the proceeds from the bond may be used for other purposes, the Bonus Incentive Grant is only given when the bonds are used for college expenses. Moreover, if the child attends a college out of the State of Illinois, the bonus is also forfeited. Additionally, the bonus is processed for release by the Illinois Student Assistance Commission only when funds are approved for release by the state. In Illinois, the college savings bonds are considered assets and must be included in the determination of eligibility when a student applies for financial assistance. Moreover, while the bonds are secure, they are not always suitable as an investment option, especially if there is no intention to let the bond mature. Zero-coupon bonds are designed to be brought to maturity, and selling them prior to maturity may carry tax consequences as well as a less-than-full value of the bonds to date. For those who are determined to see it through, the bonds can be bought from brokerage companies, the names of which will be announced when the State issues the bonds. There have been 12 issues so far although bonds were not issued in 2004. The bonds may also be bought as a gift but cannot be issued in the name of a minor. For general savings bonds, to qualify for tax exemption the following conditions must be met, including: bond buyers are at least 24 years old; the proceeds are used to pay for the expenses of the dependents claimed on the bond owner’s tax returns; the expense occurs at the same tax year as the bond redemption; and the bond buyers are within certain income limits. If any of these and other conditions laid down in the conditions of the bonds is not met, the bonds are taxed as regular income. These rules vary from state to state and in Illinois, the use of the proceeds for purposes other than college expenses does not affect the tax-exemption privilege. Because Illinois College Savings Bonds are normally low-yielding, it should not be the sole source of funding for college. However, they are secured investment instruments and are ideal as supplemental savings facilities especially if the intended beneficiary is still quite young. |