529 Plan and College Savings

Archive for October, 2006

Question: US Savings Bonds – is interest non-taxable when used for College Tuition?

In the 90′s, I purchased US Savings bonds because I was told that the interest would be tax free, if the proceeds were used to pay college tuition.

Where would I look for further information – yes daughter is in college and tuition bills are coming.

I think it made a difference if the bonds were purchased in my name or her name. They were purchased in her name.

Thanks

Answer: Only if you meet all the criteria.

Rarely do I have someone meet all the tests…and then they tend to opt for an education credit anyway.

Each dollar of tuition money can only be used once. So if you decide to exclude the interest income, you can’t use the same amount of money for an education credit. (You’ll try it both ways to see which is best for you. Though some tuition bills are so high, you won’t run out of money….)

The criteria, from form 8815

http://www.irs.gov/pub/irs-pdf/f8815.pdf

Bond in your name, not child’s.
You were at least 24 at time of purchase.
Expense for someone on your tax return (you must claim your child)
Income less than $84950 (if not married) or $134900 (if married filing jointly).

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