Series EE bonds issued after 1989 and Series I bonds purchased anytime have a college tax-savings feature. If you meet the eligibility requirements, you may be able to exclude some or all of a bond’s interest from your federal income tax when you use the bond to pay qualified higher education expenses.

To qualify for the U.S. Savings Bond education exclusion, you must meet specified requirements. Here’s a summary of the main ones:

General requirements

• You must meet the income limits in effect in the year you redeem the bonds.
• You must be at least 24 years old on the first day of the month in which you bought the bonds.
• You must redeem the bonds in the same tax year you pay qualified education expenses.
• Bonds intended for a child’s college education must be issued in a parent’s name as the owner, not in the name of the child. Bonds can also be issued in the name of the taxpayer and the taxpayer’s spouse as co-owners.
• Your child can be listed as a beneficiary on a bond, but not as a co-owner. If you already bought bonds in your child’s name, the bonds may be reissued as long as the funds used to buy the bonds didn’t belong to your child.
• You have to pay qualified education expenses equal to or greater than all the proceeds from the bonds you redeemed during the year. If the amount of your redemption proceeds exceeds the amount of qualified education expenses you paid during the year, the amount of excludable interest will be reduced.

Definition of qualified higher education expenses

Qualified education expenses are tuition and fees required to attend an eligible educational institution. According to the IRS, an eligible educational institution includes virtually all accredited public, nonprofit, and private colleges, universities, and vocational schools.

Contributions to 529 college savings programs and contributions to an education savings account are also qualified higher education expenses. Room and board and book costs are not qualified expenses.

The expenses may be for the benefit of you, your spouse, or a dependent who you claim an exemption for on your federal tax return.

Required reductions

You must reduce your qualified higher education expenses by the amount of certain benefits a student receives. These include:

• Tax-free scholarships 
• Tax-free withdrawals from an education savings account
• Nontaxable payments received for educational expenses, such as Veterans’ educational assistance benefits, benefits under a 529 college savings program, or tax-free employer-provided educational assistance
• The amount you used in figuring the Hope and lifetime learning credits

You do not have to reduce your qualified higher education expenses by:

• Gifts 
• Bequests 
• Inheritance payments

For more information

• Series EE and Series I Bonds, U.S. Department of the Treasury, www.treasurydirect.gov. 
• IRS Publication 970, Tax Benefits for Higher Education, www.irs.gov.
  

Article is for educational purposes only and is not intended to provide specific tax or legal advice. For answers to tax questions, please see your tax professional. For legal questions, consult an attorney.

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