EE SAVINGS BOND & 529 Plans

[drewber]

Ok, I have several thousands of dollars in Series EE savings bonds (issued from 1988 thru 1992. I know that you can use the bonds relatively tax free if cashed and used for Qualified Educational Expenses.

I was reading the IRS Publication 970 which defines Qualified education expenses:

These include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption.

Such as:
1. Tuition and fees required to enroll at or attend an eligible educational institution. Qualified education expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program.

2. Contributions to a qualified tuition program (QTP) (see chapter 10.

3. Contributions to a Coverdell education savings account (ESA) (see chapter 7).


So Im reading this to mean that I can cash in my EE bonds, open a QTP (otherwise known as a 529 plan) and that counts as a qualified educational expense for tax purposes. Buying a 529 plan is the same as buying tuition since 529s are typically only used for education expenses.

If so, what is the process for doing this? Go to bank, cash in; then write checks for same amounts to open 529s? Advice?

[bjl584]

A brokerage firm may be able to handle all of the transactions for you. If not, they should know the procedure for doing so. I would call their customer service dept. and explain what you trying to do.

[Like2Plan]

Ok, I have several thousands of dollars in Series EE savings bonds (issued from 1988 thru 1992. I know that you can use the bonds relatively tax free if cashed and used for Qualified Educational Expenses.

I was reading the IRS Publication 970 which defines Qualified education expenses:

These include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption.

Such as:
1. Tuition and fees required to enroll at or attend an eligible educational institution. Qualified education expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program.

2. Contributions to a qualified tuition program (QTP) (see chapter 10.

3. Contributions to a Coverdell education savings account (ESA) (see chapter 7).


So Im reading this to mean that I can cash in my EE bonds, open a QTP (otherwise known as a 529 plan) and that counts as a qualified educational expense for tax purposes. Buying a 529 plan is the same as buying tuition since 529s are typically only used for education expenses.

If so, what is the process for doing this? Go to bank, cash in; then write checks for same amounts to open 529s? Advice?

First of all, the bond purchase has to meet certain conditions:
Eligible bonds include Series EE Bonds issued after December 31, 1989 and all Series I Bonds. Series HH bonds are not eligible. Bonds purchased before 1990 may not be exchanged for bonds issued later to make them eligible.

The bond owner must be at least 24 years old on the bond issue date (the first day of the month in which the bonds were purchased). Parents can purchase bonds for their children, but the bonds must be registered in the parents name. The child cannot be listed as a co-owner, but may be listed as a beneficiary. You can also purchase bonds for your own education, in which case the bonds must be registered in your name.
Link to Treasury Direct

Second of all, there is an income test. If you make too much money, you can't write it off. For 2010, the income phaseouts are $70,100 to $85,100 for single filers and $105,100 to $135,100 for married taxpayers filing jointly.

Provided you meet all the conditions, you can cash the bonds in at any bank and use the proceeds to invest in the 529 account of your choice. Then, next year you will fill out a form 8815 on your taxes link to form 8815 and instructions