Using Savings Bonds to Pay College Costs
Here's what to know about how the interest on savings bonds is taxed when the bonds are used to pay for education expenses.

My older son is starting college in the fall, and I would like to use his Series EE bonds tax-free for his expenses. The way I read the rules, however, I don't think I can. The bonds were purchased by various family members from 1994 through 2001 and have my son listed on the “to” line of the bonds. If I can’t use them tax-free, will the interest be taxed at my son’s rate?
You're correct about missing out on the tax break. To qualify, the bond owner must have been at least 24 years old when the bond was issued and must use the money to pay qualified education expenses for himself, his spouse or a dependent. (Tuition and fees qualify; room and board do not.) In most cases, as in yours, the bonds must be owned by the parent or co-owned by both parents. Because your son is listed as the owner, you can't exclude the interest on your return. (After all, it's not your income.)
The interest subject to tax when the bonds are redeemed should be reported on your son's tax return. He won’t be able to take the tax break by using the money for college costs, either, because the bond owner must be at least 24 years old on the bond’s issue date. Unfortunately, the interest might be taxable at your tax rate rather than your son’s. The “kiddie tax” applies the parents’ rate to a child’s investment income if it exceeds $1,900 this year. The kiddie tax usually disappears when a child turns 18, but it applies to full time students until the year they turn 24.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
I bonds and EE bonds issued after 1989 are eligible for the tax break. For 2012, the break starts to phase out if modified gross income is $109,250 or higher for joint returns or $72,850 for single filers and other returns. The break disappears completely when income tops $139,250 for joint returns or $87,850 for others (it’s your income level when you use the money for college expenses that counts, not your income when you originally purchased the bond). For more information about calculating the tax-free amount, see IRS Publication 970, Tax Benefits for Education. Also see the Treasury Department’s Using Savings Bonds for Education. And for more information about saving for college, see Smart Ways to Save for College.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
-
Donating Complex Assets Doesn't Have to Be Complicated
If you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Travel trends you can expect this summer
The Kiplinger Letter Domestic trips will trump foreign travel amid economic uncertainties, though some costs are down.
-
Ask the Editor, May 16 — Reader Questions on Capital Gains
In our latest Ask the Editor round-up, Joy Taylor, The Kiplinger Tax Letter Editor, answers three questions from readers on capital gains.
-
IRS Government Watchdog Warns More Layoffs to Come
IRS Over 11,400 IRS employees took the Trump-instructed buyout or were terminated. What does it mean for your taxes going forward?
-
Ask the Editor, May 9 — Reader Questions on QCDs
In our latest Ask the Editor round-up, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on qualified charitable distributions (QCDs).
-
Ask the Editor, May 4 — Questions on Tax Deductions, Losses
In our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers readers' questions on tax deductions and losses.
-
The IRS is in Chaos
The Tax Letter DOGE, departures, data agreements and more are creating havoc at the IRS.
-
Ask the Editor: Reader Questions, April 25 — 529 plans
In our latest Ask the Editor round-up, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions related to 529 plans.
-
Ask the Editor: Reader Questions, April 18 — Amended Returns
In our Ask the Editor: Taxes, April 18, round-up — Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on amended returns, mortgages and deductions.
-
How Many IRS Commissioners Have We Gone Through This Year?
IRS Who were the former IRS commissioners, and why did they resign? Find out how IRS turnover can impact your taxes.