The Treasury Department’s Series EE and Series I U.S. Savings Bonds offer a low-risk, modest-return option for college savings. The interest collected on the bonds is normally tax-free as long as it is utilized to pay for eligible educational expenditures. When bought early in a student’s life, they provide a safe, guaranteed return once college arrives.
How do you cash in your college savings bonds?
Savings bonds must first be sold or redeemed before being rolled into a 529 plan. The money will not be taxed as long as it is deposited into a 529 plan within 60 days. 3 When submitting your taxes, make sure to include Form 8815.
What can you do with a savings bond?
Savings bonds are a type of government debt that is offered to citizens of the United States to help support federal spending. Savings bonds are purchased at a discount and mature at their full face value, but they do not pay regular interest.
What is the purpose of educational savings bonds?
Qualified taxpayers can deduct all or part of the interest earned on eligible savings bonds from their annual gross income under the education savings bond program. When the bonds’ owners utilize both the principle and interest to pay for higher education at approved institutions, either for themselves, their spouses, or their dependents, the bonds become tax-free.
Can student loans be paid with savings bonds?
Are there any savings bonds in your possession? Those old paper bonds that some grandparents purchased for their newborn grandkids to help pay for college could now be worth a lot of money.
You can utilize your savings bonds for education instead of taking out extra student loans if you’re in college or planning to go to graduate school. Let’s look at how you can utilize Series EE bonds for tax-free education, or how you can use savings bonds to pay off student loans faster specifically:
Is it necessary to report savings bonds on the fafsa?
The federal government, as well as schools and institutions, use the free application for federal student aid, or FAFSA, to calculate how much financial help a student is eligible for. When completing the FAFSA, you must enter the current value of any savings bonds you own as an investment asset, not the face amount. For FAFSA purposes, a bond registered in the child’s name counts as an asset possessed by the child. It is reported as a parental asset if it is owned by the parent, which has a reduced influence on the student’s possible aid.
How can I save money on savings bonds without paying taxes?
Cashing your EE or I bonds before maturity and using the money to pay for education is one strategy to avoid paying taxes on the bond interest. The interest will not be taxable if you follow these guidelines:
- The bonds must be redeemed to pay for tuition and fees for you, your spouse, or a dependent, such as a kid listed on your tax return, at an undergraduate, graduate, or vocational school. The bonds can also be used to purchase a computer for yourself, a spouse, or a dependent. Room and board costs aren’t eligible, and grandparents can’t use this tax advantage to aid someone who isn’t classified as a dependent, such as a granddaughter.
- The bond profits must be used to pay for educational expenses in the year when the bonds are redeemed.
- High-earners are not eligible. For joint filers with modified adjusted gross incomes of more than $124,800 (more than $83,200 for other taxpayers), the interest exclusion begins to phase out and ceases when modified AGI reaches $154,800 ($98,200 for other filers).
The amount of interest you can omit is lowered proportionally if the profits from all EE and I bonds cashed in during the year exceed the qualified education expenditures paid that year.
Is it possible to use tax-free savings bonds for education?
Advantages. The interest on these bonds is tax-free if spent for eligible higher education expenses since they are backed by the full faith and credit of the United States government. In addition, interest on Series EE and I savings bonds is normally tax-free in most states.
Can grandparents use savings bonds to pay for college?
It’s not easy, but when redeeming savings bonds to pay for a grandchild’s college expenses, grandparents can avoid a tax payment. Answer: You can use savings bonds to help pay for college, and the interest you receive on them may not be subject to federal income tax in some situations.