The easiest way to get IRS-subsidized tuition payments is with the special U.S. Savings Bond exclusion. You can potentially exclude all or a portion of the interest that accrues on such bonds if you:

• Pay qualified higher education expenses in the year of redemption;
• Are not married and filing separately, and
• Do not have income over a certain amount. For single taxpayers, the tax exclusion begins to be reduced with a $58,500 modified adjusted gross income and is eliminated for adjusted gross incomes of $73,500 and above. For married taxpayers filing jointly, the tax exclusion begins to be reduced with a $87,750 modified adjusted gross income and is eliminated for adjusted gross incomes of $117,750 and above.

The bond must be in your name, not in the name of your child, and you had to buy it, not a relative or family friend. Once your child’s in college, you can’t claim an exemption for any bonds that exceed the cost of the education. For example, if that year’s educational costs total $25,000, that’s the most you can cash in and declare exempt for taxes.

To make the numbers simple, assume you redeem qualified bonds with $10,000 in accrued interest. If you’re in the 27.5% bracket, you’ll save $2,750 in taxes that will therefore become available for other needs -- such as college expenses.

More information about this program is available from the Treasury Department, Bureau of the Public Debt.