Dear Dr. Don, This is a bad news, good news situation that I'm asking about. I just received several Series EE and Series I savings bonds. I am the so-called payable-on-death beneficiary on the bonds. My mom, who purchased the bonds, recently passed away. Can I cash them in and use them for my daughter's college fund without getting hit with a big tax bill? I think my mom would be happy to see the money being put to such good use.
-- Sherri Savings
Put another way, you want to know, as the payable-on-death beneficiary, if you can use the federal education tax exclusion to cash in the savings bonds to pay for your daughter's college costs. The beneficiary angle puts an interesting wrinkle on the question, so I worked with the customer service specialists at the U.S. Treasury Department to find you the answer.
The reply was: "Since she is not the original, first-named owner on the bond, it does not qualify for educational purposes. It would still not qualify if she were to reissue the bond as well. It must be originally purchased with the intention of educational use."
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