Using bonds for higher education
Normally, the interest you earn on your savings bonds becomes part of your gross income for tax purposes. Under certain conditions, though, you can avoid taxes on the interest by using it to pay for higher education.
Which savings bonds qualify?
Series EE or I savings bonds issued after 1989.
They must be issued in your name. If you are married, they may be issued in your name and your spouse's name.
Important: Note the age restriction in the next section. The person named on the bond must be 24 years or older when the bond is issued. Therefore, a bond issued with a child's name will not qualify even years later when the child is ready for college. If you want to buy savings bonds to later get this tax exclusion for a child's higher education, you must register the bonds in your name, not the child's.
What other restrictions apply?
You can take the tax exclusion if you meet all of these conditions:
- You were 24 years old or older before the bonds were issued.
- Your modified adjusted gross income is less than the cut-off amount that the IRS sets for the year in which you want to take the exclusion. The cut-off amount may change each year. You can find the current cut-off amount on IRS Form 8815.
- You cash the qualifying savings bonds in the same tax year for which you are claiming the exclusion.
- You paid qualified higher education expenses to an eligible institution that same tax year. (The instructions that come with IRS Form 8815 explain both "qualified expenses" and "eligible institution." They also tell you what records you must keep.)
- The expenses were for yourself, your spouse, or someone you list as a dependent on your federal income tax return.
- You file your IRS tax return with any status EXCEPT married filing separately.
Where can I find more information?
IRS Form 8815 gives details and instructions.
How do I get the tax exclusion?
If you meet all the conditions, fill out IRS Form 8815 and submit it with your tax return.