Q. I have some savings bonds that were given to my son as gifts when he was born. He will be a high school senior next year and I would like to use them for college expenses. I understand that bonds can be used without penalty for education. How exactly do I do this?
— College bound
A. We’re glad you asked.
There’s a special exemption in the tax code, called the Savings Bond Education Tax Exclusion, that allows you to avoid taxes when cashing in certain types of saving bonds for college, or higher education expenses.
The bonds must be Series EE and Series I bonds issued after Dec. 31, 1989, said Bill Connington of Connington Wealth Management in Fairfield.
“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,” he said.
Then you have to have “qualified education expenses” for you, your spouse or a dependent that you can claim on your tax return, Connington said, 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 post-secondary 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, he said.
Connington added that 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,” he said.
Good luck to your son!
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