How Do Savings Bonds Work for College Expenses?

Savings bonds are a safe and easy way to save for college.

United States savings bonds are a popular way to save for college expenses, as they are tax-free when used for qualifying higher education costs. Additionally, they are safe investments, as they are backed by the full faith and credit of the U.S. government.

Eligible Types

As of April 2010, the Treasury allows Series EE and Series I bonds to participate in the Education Bond Program, which exempts bond interest from taxation when used for higher education.

Qualifying Expenses

Books and room and board are not considered qualifying expenses under the Education Bond Program. Qualified expenses include tuition and fees, course expenses for degree or certificate programs, and expenses that benefit you, your spouse or your dependents.

Income Limits

The education tax exemption begins to phase out at a modified adjusted gross income (MAGI) of $67,100 and vanishes for incomes of $82,100 and above. For married taxpayers filing jointly, the phase-out begins at $100,650 of MAGI and is eliminated at $130,650.

Child Ownership

To participate in the Education Bond Program, purchasers must be at least 24 years old. However, interest on bonds earned in a child's name is also tax-exempt for college purposes, as long as the interest accumulated does not exceed the amount that would require the child to file a federal income tax return.

Purchase Limits

Series EE and I bonds have a maximum purchase limit of $5,000 in any one calendar year.

References

• Treasury Direct: EE Savings Bonds in Depth
• U.S. Department of the Treasury: Introduction to Savings Bonds
• Treasury Direct: Education Planning
• FinAid: Savings Bonds
• Treasury Direct: I Savings Bonds in Depth