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.
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.
What is the process for converting savings bonds to 529 plans?
Savings bonds cannot be transferred directly into a 529 plan account. The bonds must instead be redeemed and the money transferred into a 529 plan account. Within 60 days of cashing in the bonds and within the same tax year, the proceeds must be put into a 529 college savings plan.
How can I cash in my college savings bonds?
If the following conditions are met, the interest collected on Series EE and Series I bonds can be utilized tax-free for education expenses:
- The funds are to be used for approved educational expenses for either the parent or the dependent child. Tuition and expenses for courses that count toward a degree or certificate program are included in this category. Books, as well as accommodation and board, are not considered eligible costs.
- Financial aid, scholarships, 529 funds, School Savings Accounts (ESAs), or other tax advantages have not already covered the eligible education expenses.
Do you have to pay taxes on school savings bonds?
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.
What is the value of a $100 savings bond dated 1999?
A $100 series I bond issued in July 1999, for example, was worth $201.52 at the time of publishing, 12 years later.
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 put a savings bond into a 529?
If you cash in your US Savings Bonds and use the money for qualified higher education costs, you may be able to deduct the interest. Previously, only direct tuition and fee expenses were eligible for the income exclusion. Contributions to 529 savings plans are now considered qualified expenses. As a result, taxpayers have the option of transferring these funds tax-free into a 529 plan.
The details of how to do this tax-saving technique were vague at first and are now more readily available.
There are precise procedures, qualifications, and income limits to consider, so proceed with caution. The following are the requirements for the exception, which must be claimed on Form 8815 on the 1040:
1. All Series EE Savings Bonds purchased after 1989, as well as all Series I Savings Bonds, qualify as qualifying bonds. Bonds in the name of the child are usually ineligible.
2.Bonds must be issued in your name and/or the name of your spouse.
The bond holder must be at least 24 years old.
3.You, your spouse, or your dependents must utilize the bonds and proceeds for qualified higher education expenses such as tuition and fees, but not room and board or books.
Any tax-free educational support, such as scholarships, VA education assistance, employer-paid educational help, tax-free 529 payouts, and the American Opportunity Tax Credit, reduces qualified higher education expenses.
4.A qualified tuition program (529) or a Coverdell education savings account for you, your spouse, or a dependent are also eligible costs.
5.Earnings phase-outs are a significant factor.
For 2021, the exception phases out for single filers with a modified adjusted income between $83,200 and $98,200, and married filers with a modified adjusted income between $124,8000 and $154,800.
Separate filers who are married are ineligible.
These figures have been adjusted for inflation.
The phase outs must be watched carefully as the interest counts as income for purposes of the phase-out.These phase-outs provide no advantage for higher income taxpayers.
The savings bonds cannot be directly moved to the 529 plan account when used as an eligible school expense. The bonds must instead be redeemed and the proceeds transferred into the 529 plan account. Within 60 days of cashing the bonds, and within the same tax year, the proceeds must be deposited. If the entire amount isn’t put into the plan, a portion of the savings bond interest will be taxed.
Many of our clients want to save money for their grandchildren’s education by delaying income.
Because the grandchild is not a dependent, a savings bond owned by the grandparents would not normally qualify. Grandparents are eligible through the following procedure:
The grandparent does not have to be the owner of the 529 plan, but he or she must be named as a beneficiary.
Within 60 days, the grandmother redeems the savings bonds and contributes the proceeds to the 529.
If the AGI limits are fulfilled, the total proceeds can be transferred tax-free.
The grandparent’s 529 plan beneficiary is then moved to the grandchild’s 529 plan beneficiary.
Each step is completed on its own.
Changing the beneficiary of a 529 plan is popular because the funds could be used for continued education by a grandparent.
The 529 plan is reported as a qualified expense on Form 8815, and the income exclusion is claimed.
Contributions to an Indiana College Choice plan are qualified for the credit.
Disclaimer: The information on Dulin, Ward & DeWald’s blog is for educational purposes only and should not be interpreted as financial or legal advice on any subject. We strongly advise you to seek appropriate legal, accounting, or other professional counsel concerning your specific circumstances before acting on this material. Your DWD representative can answer any questions you have about the blog posts.
When you cash in your savings bonds, do you have to pay taxes?
Taxes can be paid when the bond is cashed in, when the bond matures, or when the bond is relinquished to another owner. They could also pay the taxes annually as interest accumulates. 1 The majority of bond owners choose to postpone paying taxes until the bond is redeemed.