savings

Savings bonds may not qualify for tax break

Don TaylorQuestionDear Dr. Don,
I have 19 Series EE savings bonds dating from August 1988 through November 1990. Should I hold them or cash them in for my son's college education? In terms of getting a tax break, am I correct in believing they can be used only for education course fees and not for dormitory fees or meal plans? I am a disabled retiree who was told I didn't qualify for financial aid for my son.
-- Puzzled Pat

AnswerDear Pat,
The education tax exclusion provision for savings bonds is for Series EE Bonds and Series I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution. The only bonds you own that qualify are those issued in 1990.

You have to meet other qualifications to qualify for this exclusion. You can learn more on the TreasuryDirect Web page "Education Planning." The page provides the following information on qualified expenses:

Qualified educational expenses include:

  • Tuition and fees (such as lab fees and other required course expenses).
  • Expenses that benefit you, your spouse or a dependent for whom you claim an exemption.
  • Expenses paid for any course required as part of a degree or certificate-granting program.
  • Expenses paid for sports, games, or hobbies qualify only if part of a degree or certificate program.

Note: The costs of books or room and board are not qualified expenses.

Even if you didn't qualify for financial aid, you should be able to take out Direct PLUS loans to finance your son's college education. Learn more about the William D. Ford Federal Direct Loan Program on the U.S. Department of Education's "Direct Loans" Web page.

I'd take a look at what the bonds are currently earning and consider the tax consequences of redeeming the bonds before cashing them in. The Savings Bond Wizard available on the TreasuryDirect website will let you input your bonds and provide all the details, including which bonds are eligible for the education tax exclusion.

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