16.6.2.3 Education Savings Bond Program
The purpose of the education savings bond program is to benefit individuals paying for qualified college expenses for themselves, their spouses, or their dependents. Under the education savings bond program, the interest income from the bond is tax exempt if it is used to pay for qualified education expenses in the same calendar year the bond is redeemed. An individual can exclude the bond interest from his taxable income as long as the bond is registered in his own name jointly with his spouse. A dependent may be named as a beneficiary.
U.S. savings bonds offer a fixed rate of interest over a fixed period of time, with face values ranging from $25 to $10,000. Interest payments are accrued over the life of the bond and paid out with the principal at maturity. Savings bonds are not subject to state or local taxes, and federal taxes are deferred until redemption. Only qualified Series EE bonds issued after 1989 or Series I bonds are eligible under the education savings bond program. The interest exclusion may be limited based on the bondholder’s modified adjusted gross income, and the taxpayer must be 24 years old before the bond’s issue date.
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Summary Comparison of Educational Savings Plans |
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CESAs |
529 Plans |
UGMA/UTMA Accounts |
Educational Savings Bonds |
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Contributions |
After-tax dollars, must be cash contribution |
After-tax dollars, must be cash contribution |
After-tax dollars; gifts are irrevocable, but can be made in cash or fully paid securities |
Purchase of bond of a fixed value |
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Withdrawals |
Tax-free if used for educational expenses and beneficiary un | |||