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:
When used for college, are savings bonds tax-free?
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.
How do I cash in my EE college savings bonds?
- Whether you have a local bank account and it accepts savings bonds, inquire if it will accept yours. The answer may be contingent on the length of time you’ve had an account there. If the bank will cash your check, find out if there is a monetary restriction on redemptions and what kind of identification and other documentation you’ll need.
- Send these, along with FS Form 1522, to Treasury Retail Securities Services (download or order). The bonds are not required to be signed. You’ll need to verify your identity. The instructions are on FS Form 1522, in the “Certification” section. Our address is also included in the form.
After 30 years, how much is a $50 EE savings bond worth?
Savings bonds are regarded as one of the most secure investments available. The underlying principle is that the value of a savings bond grows over time, but it’s easy to lose track of how much it’s worth over time.
The TreasuryDirect savings bond calculator, fortunately, makes determining the value of a purchased savings bond a breeze. You’ll need the bond series, face value, serial number, and issuance date to figure out how much your savings bond is worth.
If you bought a $50 Series EE bond in May 2000, for example, you would have paid $25. At maturity, the government committed to repay the face amount plus interest, bringing the total value to $53.08 by May 2020. A $50 bond purchased for $25 30 years ago is now worth $103.68.
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.
What impact do savings bonds have 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.
What is the procedure for redeeming my education savings bonds?
To help your children save for college, you can gift them Series EE or I Bonds. 1 When it’s time to pay for college, you have two options: cash them in or roll them into a 529 plan (see below).
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.
When you cash in your savings bonds, do you have to pay taxes?
State and local taxes are not levied on savings bonds. You don’t get your interest until you redeem your bonds, so you can defer paying taxes until then, however you can choose to pay taxes on the interest you’ve earned every year. Bond interest is taxed at your marginal tax rate by the government. You must pay a 3.8 percent Medicare tax based on your investment income or the amount of adjusted gross income that exceeds the mentioned levels if you earn more than $200,000 as an individual or $250,000 as a couple. For the purposes of calculating your Medicare tax, savings bond interest is included in your investment income. You cannot redeem savings bonds during the first year of ownership, and if you do so within the first five years, you will be charged three months’ interest.