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Q&A: Are there tax benefits to using savings bonds to pay for education?

Katherine Holden
by Katherine Holden, The Garrett Network

Yes, there are tax benefits.

A qualified U.S. savings bond, which is a series EE bond issued after 1989 or a series I bond, may be used for education expenses; the interest earned does not need to be included as income.

Certain conditions apply.

• Education expenses are paid by you for yourself, your spouse, or dependent, that you claim an exemption for on your tax return.

• Modified adjusted gross income (MAGI) is less than $72,850, complete phase-out after $87,850. If married filing jointly or qualifying widow(er) with a dependent child $109,250, complete phase-out after $139,250.

READ: U.S. Savings bonds

• Filing status cannot be married filing separately.

• Before the bond’s issue date (not always the date of purchase) the owner must be at least 24 years old.

• These must be used for qualified education expenses, i.e. contributions to a qualified tuition program and to a Coverdell education savings account; tuition and fees at colleges, universities, or other postsecondary educational institutions participating in a student aid program directed by the U.S. Department of Education.

This is certainly a viable savings option, but I would consider your future earnings. It could be that your income could be over the limit (adjusted for inflation), when you need to use the bonds.

 

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Katherine Holden, ChFC®, CFP®  is the founder and principal of Holden Financial Planning. She has completed the Certified Financial Planner certification process and also earned the Chartered Financial Consultant professional designation from the American College, Bryn Mawr, PA.