Dear Dr. Don,
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My U.S. savings bonds are maturing in the next couple of years, but my children are still years away from college. Can I roll over the proceeds from the Series EE bonds into a qualified 529 plan to avoid paying taxes on the interest? If not, is there another way to continue investing the money for education until we actually need to use it?
- Rachel Redemption
Savings bonds qualifying for the education tax exclusion were issued after 1989. Savings bonds issued in 1990 or later have a final maturity of 30 years after the purchase date. That means the first maturities of savings bonds that qualify for the education tax exclusion are in 2020. So, the good news is this gives you at least five or six years of continued tax deferral on savings bonds that qualify for the education tax exclusion
There are some other conditions you need to know. The owner must be at least 24 years old on the first day of the month the bonds were bought. In your situation, since you plan to use them for your children's education, the bonds have to be owned in the parent's name. The child can be named as beneficiary on the bond, but can't be named as co-owner. There are also income restrictions limiting whether the parents can take advantage of the education tax exclusion.
For your savings bonds to qualify for the education tax exclusion, you can use them to fund contributions to a 529 plan. The funds must be deposited into the 529 plan within 60 days of redemption and in the same tax year as the redemption. The IRS requires you to file Form 8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989, with your tax return. The 529 plan administrator will require the Form 1099-INT plan or the account statement issued by the redeeming institution.
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