529 Plan Law School
January 11th, 2009
Question: My parents own EE bonds. Can I cash in their bonds for law school w/o creating a tax consequence for them?
I am applying for financial aid independently. I thought in the past ee bonds could be redeemed with a tax exemption on the accrued interest but i am not sure if that is still the case, and if so do I have to put it directly in a 529 Plan because the bonds are registered under my parents ssn#’s.
Answer: Get IRS publication 970. Chapter 10.
LOOK at the bonds. Look at the dates purchased (must be after 1989) and the payees and the age of your parents when they got the bonds (must have been 24 or older) . Either the bonds qualify for the exclusion or they don’t. Even if they qualify, your parents income has to be low enough not to get hit with a phaseout (it’s phased out between $98,400 and $128,400).
If they qualify, then the interest can be excluded if EITHER the money is used to pay qualified education expenses *or* put into a 529 Plan for an eligible beneficiary. (Note, if the total is more than $24,000, your parents will also do a gift tax form.)
In order to do this, your parents must *also* be able to claim you as a dependent.
Children’s Social, Emotional & Behavioral Health Plan
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