What is the best savings plan/account out there for a single mother just finishing grad school and re-entering the workforce full time?

Of course, I am assuming that you are already taking full advantage of any matching retirement account provided by your employer. If not, that’s likely your first stop, even if you are not quite thinking about retirement yet. Between the free match and the tax benefits, a retirement account with an employer gives you too much free money to look the other way. Hence, I presume that you are looking for something that is more readily available for non-retirement purposes.

Well, suppose that I told you that there was an investment that you probably never heard of that is backed by the full faith and credit of the U.S. government, it is one of only a few investments available in the United States that gives you a guaranteed higher return when inflation rises, and is nearly fully liquid (subject to some very minor caveats)? Oh, and you don’t pay any taxes on the income during the accumulation phase; you pay taxes only once at the end, saving you a lot of taxes — the government will even waive the taxes altogether if you use the proceeds for an education expense. It sounds too good to be true, right? Sounds like a sales pitch, right? In fact, that’s the whole irony: the very reason that you probably have not heard about this investment is because salesman aren’t allowed by law to snag a commission by selling it to you!

They are called I Bonds. An I Bond is a U.S. Treasury security and is the next-best-thing-to-slice-bread investment for people in your situation. Like I said above, I Bonds are backed by the government, adjust to inflation, liquid, and fairly tax efficient. Because they are so good, however, the government limits the amount that you can buy each year. But, it does so awkwardly. Most people who are somewhat “in the know” about I bonds think that they can buy up to $5,000 of them each year. In fact, the real limit is $10,000, but you have to know the trick. In particular, you can buy up to $5,000 from your local bank in paper form. But then you can buy another $5,000 from TreasuryDirect.com in electronic form, right from the U.S. Treasury. I know, I know, it all sounds like crazy town: doesn’t the government check? Well, in fact, not only does the government not check, it is actually perfectly legal.

However, hurry and buy now! Just recently, the U.S. Treasury announced that it will phase out the paper form of government bonds in January 2012. That net effect might be (we don’t know for sure yet) to automatically reduce the annual limit to $5,000. So place your order this year to get yourself at least $10,000.