I have several thousands of dollars in Series EE savings bonds
(issued from 1988 through 1992). I know that you can use the bonds
relatively tax free if cashed and used for qualified educational
expenses, which includes contributions to a qualified tuition program
such as a 529 college savings plan. If so, what is the process for
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The interest earned on Series EE US savings bonds issued after
December 31, 1989 and all Series I bonds may be tax free when the
bonds are redeemed to pay for qualified higher education expenses or
rolled over into section 529 college savings plans, prepaid tuition
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plans or Coverdell Education Savings Accounts.
The bond owner must have a modified adjusted gross income under the
income phaseouts when the bonds are redeemed to qualify for the tax-free
treatment. The income phaseouts for 2011 are $71,100 to $86,100 for
single tax filers and $106,650 to $136,650 for married taxpayers
filing jointly. Married taxpayers who file separate returns are not
Bond owners sometimes transfer their savings bonds into 529 college
savings plans to preserve eligibility for the tax-free treatment. For
example, if the bond owner expects to be ineligible when the child
enrolls in college because of a change in income or tax filing status,
it may be beneficial to redeem the bonds sooner. There are no income
phaseouts on tax-free distributions from 529 college savings plans.
Contributions to a 529 college savings plan must be made in cash. The
savings bonds cannot be directly transferred into the 529 plan
account. Instead, the bonds must be redeemed and the proceeds
deposited into the 529 plan account.
The proceeds must be deposited into a 529 college savings plan within
60 days of cashing in the bonds and within the same tax year. The
account owner must file
IRS Form 8815
to claim an exclusion from income for the interest earned on the
bonds. The type of savings plan should be noted in the answer to
question 1(b) on the form.
Before redeeming US savings bonds, bond owners should double check to
make sure they qualify for a tax-free redemption. Only bonds issued in
1990 or a later year qualify for tax-free treatment. The child must be
listed as a beneficiary on the bonds, not as an owner or co-owner. The
bond owner must claim an exemption for the beneficiary on his/her
federal income tax return. The bond owner must have been at least 24
years old when the bonds were issued. The bond owner must have
modified adjusted gross income under the income phaseouts noted above.
The tax exclusion is not available to married taxpayers who file
Similar rules apply to rolling over US savings bonds into other types
of qualified tuition programs, such as prepaid tuition plans and
Coverdell Education Savings Accounts.
The Treasury Direct web site includes a
checklist of the requirements
Additional information may be found in
IRS Publication 970
or in the
of the FinAid site.