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Education Planning Using Saving Bonds

 

Summary

 

Describes using Series EE and Series I savings bonds to fund education plans as a non-taxable event.

 

Overview

 

Yillionaire.com does not provide tax or legal advice. This interpretation of tax law is a summarization and should not be depended upon for other than broadly informational purposes. Specific questions should be referred to a qualified tax professional.

Interest on Series EE Savings Bonds may be exempt from federal income tax if proceeds (interest and principal) are used to:

 

Pay tuition and fees (such as lab fees and other required course expenses) at colleges, universities, and qualified technical schools during the year.

 

Fund a Coverdell or 529 plan.

 

Qualifications for Interest Exclusion

 

  • Bonds must be issued after December31, 1989.
  •  
    Bonds must be bought by individuals who are at least 24 years old and cannot be received as a gift.
  • The bonds must be registered in the adult’s name.
  • If the bonds are intended to benefit dependent children, they must be issued in either one or both of the parents names.
  • The bonds cannot be issued in the name of the child.
  • Only qualified expenses of the taxpayer, taxpayer’s spouse and dependent(s) are allowed. Grandparents cannot purchase the bonds and receive any tax benefits.
  • Married individuals have to file jointly in order to participate in the program.
  • The bonds must be redeemed in a year the owner pays qualified educational expenses, which are tuition and fees or contributions to a Coverdell Account or Qualified State tuition (529) plan. Room and board do not qualify.
  • The parent’s MAGI must meet the criteria below:

 

 

 

Modified Adjusted Gross Income (MAGI) Limits

 

 Year Single ExemptionMarried Filing Jointly

2007

$65,600 or Less  Full$98,400 or Less
 $65,600-$80,600 Some$98,400 - $128,400
Over$80,600NoneOver $128,400
$67,100 or Less

Full

$100,650 or Less

 2008

$67,100-$82,100

Some

$100,650- $130,650

 

Over $82,100

None

Over $130,650

                                          
 

            Note: Modified AGI limits apply to the year of redemption of the bond.

 

Additional Details

 

For more information on Savings Bonds and the new educational benefit, write to:

 

 

Office of Public Affairs

U.S. Savings Bonds Division

Washington, DC 20226

 

For detailed information on record keeping requirements and other tax information, contact your Internal Revenue Service district office or refer to IRS Publication 550.

 

Tax Reporting

 

The taxpayer will receive a 1099-INT from the bank the following January for the interest received upon cashing in the bonds. They will then be required to file Form 8815 to exclude the interest from income if they have paid qualified higher education expenses or funded a 529 or Coverdell plan in the year the interest was received.

 

 

The earnings portion of a bond rolled into a 529 or Coverdell should be differentiated from the bond’s basis on the application of the 529 or Coverdell.