529 Plan and College Savings

Archive for April, 2009

Question: EE Savings Bonds vs. 529 Plan for College Savings?

I have two children, ages 2 and 7. I have multiple EE Savings Bonds totaling over $2000 face value ($4000 total face) for each and have also just opened a 529 Plan for each of their college savings. Does it make more sense to redeem the eligible (over 12 months old), forsake the 3 months of accrued interest, and invest the $1000+ ($2000+) into their 529 plans instead?

Thanks in advance!

Answer: Cashing in EE savings bonds in order to invest in a 529 Plan certainly makes sense for someone like you with such young children. Over the course of the next ten or fifteen years, a diversified portfolio figures to easily outperform savings bonds.

Whether you should be willing to take the three month interest penalty is a closer call. That will only work for you if your 529 investments outperform the savings bonds enough over the next few years to make up for the penalty. Otherwise you would be better off to wait until the savings bonds are five years old and you can redeem them without penalty. That’s a much shorter time horizon, so it might work out badly if stocks go into a prolonged slump.

Personally, I would go ahead and cash in the savings bonds, but with enough awareness of the risk to be philosophical if things don’t work out for the best.

MULTIPLE UFO ‘S GLOWING ORBS INDIANA 10 7 2009 !!