Ask Terry Questions College Student Cashing Bonds

College Student Cashing Bonds

By Terry Savage on October 30, 2017 | College Savings / Student Loans

My son is in his 3rd year of college and is interested in studying abroad next semester. When he was born, he received a bunch of EE Bonds, some of the bonds have his name and some have my name listed, but were for him. Should he cash in those bonds to help pay for his school? If so, what tax implications can we expect? Will I have to pay taxes on Bonds that have my name listed?

Terry Says

Well, I can understand the desire to use the bonds for this purpose.  However, if they were purchased around 20years ago, they carry a high base rate of interest and remain a very good investment!  Consider that before cashing them in. Yes, the owner owes taxes on the gains in the year the bonds are cashed.  In the case of your son, that money could seriously impact his eligibility for financial aid.  I would not cash in his bonds if he is filing FAFSA and apply for Federal student loans.  Bond in your name may not have been  disclosed on your FAFSA form.  But when you cash them in you will owe ordinary income taxes at your marginal rate --and that extra money could also impact financial aid. Those are some pretty good arguments against cashing in those EE bonds.  Can't you find the money somewhere else?  The bonds will  "mature" 30 years after issue, so you have a long way to go collecting a nice return if you keep them!

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