Under the Education Tax Exclusion, individuals can pay for qualified college expenses using Series EE or Series I savings bonds and not be subject to tax on interest accrued upon the redemption of those bonds. Other savings bonds and treasury bonds are not eligible for the exclusion.
Can I Use My Savings Bonds to Pay for My Education?
The Education Tax Exclusion applies to individuals paying for their own, their spouse’s, or their child’s college education. In order to qualify for the exclusion, the funds generated by the redemption of the bond must be used to pay for tuition, fees, or any supplies required for the courses that are part of your degree program. Books, computers and room and board are not considered qualified education expenses under this exclusion.
In addition, the following conditions must also apply:
- The bond was purchased by an individual 24 years or older
- When used to pay for your child’s education, the bond remains in your name
- Your tax filing status is either “single” or “married filed jointly”
Lastly, there is an income limit to qualify for the exclusion. For single tax payers, the income limit for 2016 is $92,550, and for married couples the income limit was $147,250.
Savings Bonds vs. 529 Plans
While government bonds represent a safe investment, many individuals have gravitated towards 529 plans since their introduction in 1996. 529 Plans and Coverdell Education Savings Accounts offer the same tax benefits as those gained under the Education Tax Exclusion, as well as offering numerous benefits over savings bonds.
529 plans and Coverdell ESAs can be used for a broader range of educational expenses, including books and room and board, and are not counted as an asset on the FAFSA®. Savings bonds, even the Series EE and Series I bonds, do need to be listed as an asset on the FAFSA®, which will lead to a higher Expected Family Contribution score.
“TreasuryDirect – Home.” TreasuryDirect – Home. Web. 27 Feb. 2018.
“PLANNING & GIVING.” Individual – Education Planning. Web. 27 Feb. 2018.