Ask Terry Questions Paying for college with EE Bonds

Paying for college with EE Bonds

By Terry Savage on December 28, 2023 | Wild Card

Hi Terry,
We have 76 EE Bonds that have reached the twenty year period and 10 out the 76 have reached the 30 year period. Is it better to use the bonds to pay for our child’s college education or take a withdrawal from my spouse’s retirement/401 k plan? We are both retired. He is of age to withdrawal from his plan but I’m not. Thank You

Thank You

Terry Says

Wait, you are retired and are paying for your own child to go to college? If so, you might be in for a HUGE (and looks like quite unexpected) tax break!
Under certain circumstances, EE bonds can be cashed in TAX-FREE to pay for college!

First, read this article from the TreasuryDirect website.

Basically, if the EE bonds were purchased after 1989, in your name(s), and your children are your dependents on your tax return, then here are the highlights of the rule:

The owner of the bond must be 24 years or older when the bond is issued. Therefore, a bond registered with a child as owner will not qualify even years later when the child is ready for college. If you want to buy savings bonds to later get this tax exclusion for a child’s higher education, you must register the bonds with yourself, or yourself and your spouse, as owners.

What other restrictions apply?
You can take the tax exclusion if you meet all of these conditions:

You were 24 years old or older before the bonds were issued.
Your modified adjusted gross income is less than the cut-off amount that the IRS sets for the year in which you want to take the exclusion. The cut-off amount may change each year. You can find the current cut-off amount on IRS Form 8815.
You cash the qualifying savings bonds in the same tax year for which you are claiming the exclusion.
You paid qualified higher education expenses to an eligible institution that same tax year. (The instructions that come with IRS Form 8815 explain both “qualified expenses” and “eligible institution.” They also tell you what records you must keep.)
The expenses were for yourself, your spouse, or someone you list as a dependent on your federal income tax return.
You file your IRS tax return with any status EXCEPT married filing separately.

I’m hoping you meet the INCOME LIMITATIONS, as described below for 2023, and are likely to be a bit higher for 2024:

If your modified adjusted gross income (MAGI) exceeds certain amounts, the exemption is phased out. For bonds cashed in 2023, the exemption begins to phase out when joint MAGI hits $137,800 for married joint filers ($91,850 for other returns) and is completely phased out if MAGI is $167,800 or more for joint filers ($106,850 or more for others).

Please do write back and let me know if you are qualified based on the above to cash in all those bonds — tax free — and use the money for college! What a windfall that would be!!



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