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How to Save For College with Series EE & I Savings Bonds

U.S. Series EE savings bonds or Series I saving bonds are another tax-advantaged way to save for college. Interest from Savings Bonds can be excluded if used to pay higher education expenses such as college tuition. This is sometimes known as the Tax Free Interest for Education program. The bonds must be cashed in the year you are paying tuition.

Advantages of Saving For College with Savings Bonds

Backed by the full faith and credit of the United States government, the interest from these bonds is tax free if used for qualified higher education expenses. Interest on Series EE and I savings bonds are always exempt from state and local taxes.

Disadvantages Of Saving For College with Savings Bonds

The amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $104,900 and $134,900. Regardless of your income, if your status is "married filing separately," you cannot take advantage of this savings bond program.

Rules For Using Savings Bonds for Education

The rules for using savings bonds for education can be complicated. For example, A qualified U.S. savings bond is a series EE bond issued after 1989 or a series I bond. The bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners). The owner must be at least 24 years old before the bond's issue date. Compare rules for saving for college with savings bonds with other tax-advantaged savings options using the college savings comparison chart. To learn more about the Educational Savings Bond Program visit IRS Publication 970 Tax Credits for Higher Education, Chapter 11.