Interest on series ee savings bonds is taxable on your federal tax return, but not at the state or local level. But a littleknown twist can make that rate a whole lot better. Taxfree interest on savings bonds for college tuition. To save for college taxfree using either series ee or series i savings bonds, the owner needs to be at least 24 years old on the first day of the month when the bond is issued. Although series ee bonds aka college bonds are a very vanilla investment, their tax treatment is anything but. Series ee savings bonds issued in the 1980s and early 1990s have an original maturity of 20 years, and an extended maturity of 10 years, for a total of 30 years until the final maturity of the bonds. If a financial institution pays the bond, you will receive a paper 1099int from that financial institution either soon after you redeem.
Further, your federal taxes are deferred until you cash them, which allows you to delay taxes and could result in a tax arbitrage opportunity since you may redeem them at a time with a significantly lower marginal tax rate. Form 8815 exclusion of interest from series ee and i u. Bond program makes the interest on certain savings bonds tax free when the. For income tax purposes, interest on ee bonds and i bonds is added to the initial value until the bonds are redeemed. You may have series ee savings bonds that were bought many years. One parent wonders if she can cash in some series ee savings bonds and put them into a 529 plan. The interest that your savings bonds earn is subject to. The secret feature of series ee savings bonds wealth. Individual series eee savings bonds tax considerations. After that period, you can exchange series ee bonds for series hh bonds and then. When you buy the bond, you know what rate it will earn for at least the first 20 years. You normally have to pay tax on the interest income you receive when cashing in a savings bond. Savings bonds offer investment security and the ability to defer taxes on the interest income, and both features help make up for the generally lower rate of return.
The taxability is subject to change without notice. Series ee and series i savings bonds watertown savings bank. Can you put a savings bond into an ira after maturity. The interest is completely taxfree for joint filers with modified agi less than. There are two types of savings bonds offered by the treasury, series ee and series i.
The interest accrued on these bonds when we cashed them in last year should be reported under her mothers final tax return yet the 1099 we received from the bank has. The other benefit of series ee bonds is that they are free of state and local taxes at the time of redemption. Pros, cons of paying for college with savings bonds. How to avoid paying taxes on savings bonds the balance. In the past, you could purchase paper bonds from just about any credit union or bank. Ee bonds bought from may 1997 through april 2005 earn a rate of interest that changes every six. In fact, the tax treatment of these bonds is highly complex and making the right choice yes, you actually have a choice in how youre taxed can lead to big tax savings if you know what youre doing. These bonds have tax advantagesyou do not pay state or local income tax on the interest earned, and federal income tax can be deferred until you redeem the bonds or they reach maturity. When electronic ee bonds in a treasurydirect account stop earning interest, they are automatically redeemed and the interest earned is reported to the irs. The interest earned on series ee us savings bonds issued after december 31, 1989 and all series i bonds may be tax free when the bonds are redeemed to pay for qualified higher education expenses or rolled over into section 529 college savings plans, prepaid tuition.
Series ee savings bonds and series i savings bonds offer special tax benefits. I cashed some series e, series ee, and series i savings bonds. Using savings bonds to pay student loans student loan hero. Box 9150 minneapolis, mn 554809150 some treasury bonds. Form 8815, exclusion of interest from series ee and i. If you turn 24 on june 18, 2009, and you purchase a bond on june 19, 2009 so you really and truly are 24 years old, the issue date is. Series ee savings bonds can defer income taxes until redemption or 30 years. Treasury announces the rate for new bonds each may 1 and november 1. The irs lets you avoid paying taxes on interest earned by series ee and series i savings bonds when you redeem them if you use the money toward qualified higher education costs for yourself, your spouse, or any of your dependents. An education savings bond program lets qualified taxpayers exempt all or a portion of interest earned upon redemption of eligible savings bonds from. About form 8815, exclusion of interest from series ee and.
The last treasury bond in paper form matured in 2016. Through 1989 that was the rule across the board, but series ee savings bonds purchased on or after january 1, 1990, have different rules when it comes to using your savings bonds to pay student loans for education. Inherited savings bond my wife inherited series ee savings bonds from her mother who died in 2016. List the amount of interest youve earned from the bonds on schedule b and use form 8815 to figure out how much of that interest you can exclude from your taxable income. They earn interest for 30 years if you keep them that. Series ee pays a fixed rate of interest for 30 years. Series ee savings bonds are low risk debt obligations of the federal government. Savings bonds earn interest for 30 years, but rates are relatively low. Both e and ee bonds are discount bonds and redeemable before or at final maturity at increasing redemption values. The interest rate of an hh bond was set on the day it was purchased and remained that rate for 10 years.
Taxexempt treatment applies only to series ee bonds. Ee bonds purchased between may 1997 and april 30, 2005, earn a variable rate of interest. Series ee bonds issued may 2005 and after earn a fixed rate of interest. Tax advantages of series ee savings bonds the balance. The bond must be issued either in your name as the sole owner or in the name. Savings bonds tax free if used for college chicago. Ways to exempt series ee bond interest from income tax. How to redeem a savings bonds without paying taxes. Education savings bond program p57 irs tax map archive.
How to redeem a savings bonds without paying taxes finance. You can redeem your series ee bonds after 12 months, but there is a threemonth interest penalty if you redeem these bond within the first five years. What grandparents need to know about using savings bonds. Savings bonds issued after 1989, including recent updates, related forms, and instructions on how to file. While savings bonds do not earn high interest, the low interest rate is. Series ee savings bonds are exempt from state and local income taxes. Savings bonds calculator series ee savings bonds faq. Interest is added to an ee bond monthly and paid when you cash the bond.
Savings bonds are exempt from taxation by any state or political subdivision of a state, except for estate or inheritance taxes. Hh bonds were available only in exchange for series ee or series e bonds or upon reinvestment of matured series h bonds. Savings bond holders have a choice of when to pay that tax. The interest that savings bonds earn is the amount that a bond can be redeemed. You will also need to complete schedule b, interest and ordinary dividends, and form 8815, exclusion of interest from series ee and i u. What college expenses qualify for payment with savings bonds. Information about form 8815, exclusion of interest from series ee and i u. Of course, doing this comes with a number of qualifying rules. Federal bonds the following information on federal bond is intended as a guide only and is believed to be accurate.
Find out what your savings bonds are worth with our online calculator. One of the biggest benefits of series ee savings bonds is the exemption they earn from. Find out the tax implications of cashing in savings bonds for education. You can transfer property, including matured savings bonds, taxfree from a trustee ira or qualified retirement account, such as a 401k, to an ira as long as you observe the rules.
Ee bonds we sell today earn the same rate of interest a fixed rate for up to 30 years. Series ee bonds are the most common type of bonds issued by the u. Federal bonds nonmunicipal obligations oklahoma income taxable ok. Youll owe taxes only on the 4 percent annual interest that hh bonds pay semiannually. The ownership of the bond governs who is responsible for paying tax on. Q can i use my series ee or i bonds to pay for a grandchilds collegeand save on taxes a you can redeem savings bonds to help cover the cost of college, and in some cases the interest the. Savings bonds issued after 1989 frequently asked questions faq interest, dividends, other types of income. If you meet the age and income requirements, interest on your i and ee savings bonds is taxfree if you cash in the bonds to pay tuition and fees. Backed by the full faith and credit of the united states government, the interest from these bonds is taxfree if used for qualified higher education expenses. The calculator will price series ee, series e, and series i savings bonds, and savings notes. Features include current interest rate, next accrual date, final maturity date, and yeartodate interest earned. You may already have purchased one or two or more series ee or series i savings bonds with the idea of using them for educational expenses, but youre watching your salary rise, and think that you may soon be earning more than is allowed in order to take advantage of tax. Can i cash in series ee savings bonds to fund 529 plan. The interest that savings bonds earn is the amount that a.
The annual interest rate for series ee savings bonds is currently a paltry 0. Series ee savings bonds issued after 1989 or series i saving bonds are another taxadvantaged way to save for education. Payments into section 529 plans or coverdell education savings accounts. The rollover defers the tax on the interest your e and ee bonds have earned for up to 20 years. What you must know about taxation of ee series bonds ed. Series e bonds were issued from may 1, 1941 until dec. They are virtually riskfree and offer tax benefits for higher education if owners meet certain. However, the only way to exempt the interest on series ee savings bonds from income taxes is by spending the interest on educational expenses. The education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of eligible series ee and series i savings bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution. Publication 550, investment income and expenses including capital gains and losses tax topic 403 interest received.