Series EE savings bonds/529 accounts

swimcatsmom · 01-15-2007, 02:47 PM

A few days ago there was a discussion about reporting and valuing savings bonds for FAFSA purposes. I just came across this information on finaid and thought it may be of interest to anyone who is considering selling such bonds for college funding purposes:

Quote:

Series EE and I US Savings Bonds issued after December 31, 1989 may be redeemed tax-free in order to contribute the proceeds to a section 529 plan or Coverdell Education Savings Account. (To take advantage of this, file IRS Form 8815 to claim an exclusion for the interest after rolling the proceeds of these US Savings Bonds into a section 529 college savings plan or Coverdell Education Savings account. Write "529 College Savings Plan" or "Coverdell Education Savings Account" in the answer to 1(b), where it asks for the name of the educational institution. The specific citation in the tax code for this guidance is IRC Section 135(c)((2)(C).)

sblake7 · 01-15-2007, 02:50 PM

Good info- and a good strategy for parents who have saved for college with savings bonds with the kid's name on them, and now find that they're being penalized aid-wise.

swimcatsmom · 01-15-2007, 03:00 PM

Yeah I was pretty pleased with myself for finding that out. Told my husband and he already knew and apparently had told me about it - 15 years ago!! I can't even remember stuff from yesterday half the time.

It looks like you have to be really cautious about how you do it - i.e. education expenses you pay (not covered by scholarships etc) in the year you sell the bonds must exceed the interest amount in order to take the exemption. Still something we will be looking at closely. http://www.irs.gov/pub/irs-pdf/f8815.pdf

swimcatsmom · 01-15-2007, 03:25 PM

Oops - I just read through the whole IRS form and contributions to the 529 account do qualify as education expenses. Makes more sense now. One of those 'duh' moments.

Quote:

Qualified higher education expenses include tuition and fees required
for the enrollment or attendance of the person(s) listed on line 1,
column (a), at the institution(s) listed in column (b). They also include
contributions to a Coverdell ESA or a QTP for the person(s) listed on
line 1. Qualified expenses do not include expenses for:

anxiousmom · 01-15-2007, 05:29 PM

Unfortunately my mother bought the bonds in my kid's names. Since they weren't bought by the parent, we cant' take this tax exclusion! Oh well - they only are worth about $2000 - and the interest will probably be under the limit on DS's taxes when he redeems them.

swimcatsmom · 01-15-2007, 05:40 PM

anxiousmom - I had not spotted that point but you are correct. Luckily most of ours are in our names though some are in the kids.

Quote:

To qualify for the exclusion, the bonds must be series EE or I U.S.
savings bonds issued after 1989 in your name, or, if you are married,
they may be issued in your name and your spouse?s name. Also, you
must have been age 24 or older before the bonds were issued. A
bond bought by a parent and issued in the name of his or her child
under age 24 does not qualify for the exclusion by the parent or
child.

Odd rule - but I guess that is not new about taxes