Paying For College: Using US Savings Bonds

BOSTON (CBS) – The Education Bond Program was the first program available to offer any kind of a tax break for parents trying to save for college.

Both I Bonds and EE Bonds purchased after 1990 can be used for the Education Bond Program. This program allows a tax exclusion for savings bonds’ interest when used to pay for college tuition and fees. This program was set up in the late 80s when savings bonds paid an interest rate of over 8%. Not anymore!

There are some strict requirements to meet. The bonds must be in the parent’s name, not the kid’s. The child can be the beneficiary just not an owner or co-owner. If grandma wants to gives the kids savings bonds for college, she needs to purchase them in mom or dad’s name. The person purchasing the bonds must be over age 24.

The program is limiting in that the money can only be used for tuition and fees, the costs of books and room and board are not considered qualified expenses.

You are not required to indicate that you intend to use the bonds for educational purposes when you buy them. So you can be saving for college in a 529 plan and have a stash of savings bonds as a backup. The bonds are in the parent’s name so they are not considered an asset owned by the child for financial aid.

There are income limits as to who can use the program. These limits are for the year you cash in the bonds, not the year you are purchasing them. They have not published the numbers for 2017 but for last year, single taxpayers had the ability to use the bonds tax-free if their income was under $77,550 but not more than $92,550.

For married couples filing jointly the income tax exclusion was phased out between $116,300 and $146,300.

You can only purchase savings bonds online thru the Treasury’s website or through programs where you work.  Paper bonds are no longer available.

You are limited to the number of bonds you can purchase annually; $10,000 of face value for each type of bond, EE and I Bonds. And you can use your IRS refund to purchase an additional $5,000. There is no limit to the amount you can accumulate though.

One more thing: When researching the bond program I found that our Senator Ted Kennedy stated during a meeting in 1988 when they were setting up this plan “That a child born in 1987, one year of private college, starting in 2005, will cost $30,000 – not counting room, board, books and extras.” He was right on!

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You can hear Dee Lee’s expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m. and 3:55 p.m.

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