Normally, the interest you earn on your savings bonds becomes part of your gross income for tax purposes. Under certain conditions, though, you can avoid taxes on the interest by using it to pay for higher education.
Which savings bonds qualify?
Series EE or I savings bonds issued after 1989.
They must be registered with you as the owner. If you are married, they may be registered with you and your spouse as owners.
Important: Note the age restriction in the next section. The owner of the bond must be 24 years or older when the bond is issued. Therefore, a bond registered with a child as owner will not qualify even years later when the child is ready for college. If you want to buy savings bonds to later get this tax exclusion for a child's higher education, you must register the bonds with yourself, or yourself and your spouse, as owners.
What other restrictions apply?
You can take the tax exclusion if you meet all of these conditions:
- You were 24 years old or older before the bonds were issued.
- Your modified adjusted gross income is less than the cut-off amount that the IRS sets for the year in which you want to take the exclusion. The cut-off amount may change each year. You can find the current cut-off amount on IRS Form 8815.
- You cash the qualifying savings bonds in the same tax year for which you are claiming the exclusion.
- You paid qualified higher education expenses to an eligible institution that same tax year. (The instructions that come with IRS Form 8815 explain both "qualified expenses" and "eligible institution." They also tell you what records you must keep.)
- The expenses were for yourself, your spouse, or someone you list as a dependent on your federal income tax return.
- You file your IRS tax return with any status EXCEPT married filing separately.
Where can I find more information?
IRS Form 8815 gives details and instructions.
How do I get the tax exclusion?
If you meet all the conditions, fill out IRS Form 8815 and submit it with your tax return.
FAQs
The pros and cons of the Series I bond for college savings
Tax exclusion: Investors have the ability to exclude taxes on the bond's interest if it's used to pay for qualified educational expenses in the same year it's cashed.
Can treasury bonds be used for education? ›
Rules for Using Savings Bonds for College
The funds are used for qualified educational expenses for parent or dependent child. These include tuition and fees for courses that count toward a degree or certificate program. Books and room and board are not qualified expenses.
Which taxpayer can claim the exclusion for interest on US savings bonds used for higher education purposes? ›
To qualify for this exclusion, the taxpayer, the taxpayer's spouse, or the taxpayer's dependent at certain post-secondary educational institutions must incur tuition and other educational expenses. Persons with incomes above certain thresholds may not be eligible to participate.
How do I cash in my education savings bonds? ›
Electronic EE or I savings bonds
- Go to your TreasuryDirect account.
- Go to ManageDirect.
- Use the link for cashing securities.
They include amounts paid for the following items:
- Tuition and fees.
- Room and board.
- Books, supplies, and equipment.
- Other necessary expenses (such as transportation)
I bonds are certainly a reasonable alternative for college savings, but the various restrictions on their purchase and use may make 529 college savings plans a better option for many families.
How do you avoid tax on treasury bonds? ›
The Treasury gives you two options:
- Report interest each year and pay taxes on it annually.
- Defer reporting interest until you redeem the bonds or give up ownership of the bond and it's reissued or the bond is no longer earning interest because it's matured.
The initial yield is only good for the first six months you own the bond. After that, the investment acts like any other variable vehicle, meaning rates could go down and you have no control over it. And if you wait until, say, 2026 to buy an I bond, the initial rate could be well below current levels.
How to report savings bond interest used for education? ›
If your total interest isn't more than $1500 for the year, and you're not otherwise required to report interest income on Schedule B, report the savings bond interest with your other interest on the "Interest" line of your tax return. For more information, see the Instructions for Schedule B (Form 1040).
How do I avoid taxes when cashing in savings bonds? ›
You can report the interest each year you earn it or when you cash the bond. You will report it on Schedule B of your 1040. You can avoid these taxes by using the money for qualified higher education expenses.
How to get the most value from your savings bonds
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
Income from bonds issued by state, city, and local governments (municipal bonds, or munis) is generally free from federal taxes.
Is I bond interest tax-free if used for education? ›
Interest earned on I bonds can be taxed annually or deferred until redemption or maturity. Earnings can be excluded from taxes completely if they are used for qualified education expenses under specific circ*mstances, and the interest earnings are automatically excluded from state and local taxes.
How long does it take to get money from TreasuryDirect? ›
You just bought a security from the U.S. Treasury. Securities are generally issued to your account within two business days of the purchase date for savings bonds or within one week of the auction date for Bills, Notes, Bonds, FRNs, and TIPS.
Can I roll savings bonds into a 529 account? ›
Yes. You can roll over the U.S. savings bonds into a 529 plan if you meet all of the requirements for income-tax-free use of the savings bonds.
Do I bonds count against fafsa? ›
Money in bank and brokerage accounts, UGMA and UTMA accounts, certificates of deposit (CD), stocks, cash stuffed in a mattress, trust funds, money market funds, mutual funds, stock options, bonds, other securities and commodities are reported as assets on the FAFSA.
Can I buy $10,000 worth of I bonds every year? ›
Yes, you can purchase up to $10,000 in electronic I bonds each calendar year. You can also buy an additional $5,000 in paper I bonds using your federal tax return.
Which US savings bonds are eligible for the education savings bond program? ›
Which savings bonds qualify? Series EE or I savings bonds issued after 1989. They must be registered with you as the owner. If you are married, they may be registered with you and your spouse as owners.
What are bonds used for in schools? ›
School Bonds may be issued to finance most facilities used for the operation of a School, such as classrooms, libraries, laboratories, auditoriums, buses, vans, computers, technology, recreational facilities and administrative facilities.
