Education tax exclusion for over-30 son?
Dear Dr. Don,
My youngest son is 34 and married with two children. He never completed college. I purchased series E and EE bonds for my two boys' education, and the bonds are still here for my youngest son. About half of the bonds are in his name, and the others are in my name. My son has started back to school. Are there any conditions or provisions for reducing income taxes on these bonds -- both the bonds in his name and the bonds in my name?
-- Mark Matriculate
For a savings bond owner to qualify for the education tax exclusion, he has to have been at least 24 when the savings bond was issued, the savings bond must have been purchased after 1989, and the savings bond owner's modified adjusted gross income has to be below the limit set for the year the bond is redeemed to pay for qualified higher education expenses.
Odds are some of the savings bonds held in your name will qualify for the education tax exclusion if redeemed and spent on your son's qualified higher education expenses. Savings bonds registered in your son's name and purchased before he reached age 24 won't qualify for the tax exclusion.
I'm a big fan of the Savings Bond Wizard -- software you can download from the TreasuryDirect website. It will tell you all the particulars of the savings bonds held, and you can make an informed decision about which bonds to redeem and which bonds to continue to hold as investments.
Don't let income taxes drive the decision here. Your son wants to earn a college degree. Paying taxes on investment earnings shouldn't be a roadblock to his accomplishing that goal.
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