I heard that if you use your savings bonds for college tuition or college loans, you do not have to pay the taxes on them. I was wondering if that is true and if so, how do you go about that process?
The Education Savings Bond Program may allow you to exclude interest income that is used for qualified education expenses if you meet certain requirements.
This is a great program to help families with education expenses, which seem to increase more and more each year.
The bonds you must purchase are Series EE and Series I bonds issued after Dec. 31, 1989. The bond is required to be issued in your name as the sole owner or in the name of both you and your spouse as co-owners, and the owner must be at least 24 years old before the bond's issue date.
You have to have "qualified education expenses" for you, your spouse or a dependent that you can claim on your tax return. And if you are married, you cannot file as married filing separately. There are also limits depending on your filing status and your modified adjusted gross income.
Qualified education expenses include tuition and fees to attend postsecondary institutions, which include colleges, universities and vocational schools that are eligible to participate in a student financial aid program administered by the U.S. Department of Education. Qualified expenses do not include room and board or courses that are not part of a degree or certificate program.
You'll need IRS Form 8815, Exclusion of Interest From Series EE and I U.S Savings Bonds Issued After 1989, to calculate your exclusion amount.
You can go to TreasuryDirect.gov to purchase the education savings bonds and see further details on the program.
Thanks for the great question.
Ask the adviser
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.
More From Bankrate.com
- Personal Finance - Career & Education
- Investing Education
- savings bonds