Series 66: 5.3.2.3 Education Savings Bond Program

Taken from our Series 66 Online Guide

5.3.2.3  Education Savings Bond Program

Under the education savings bond program, qualified taxpayers may not have to pay taxes on the interest earned on certain EE and I savings bonds if the money is used for qualified educational expenses in the same calendar year that the bonds are redeemed. Qualified educational expenses include tuition and mandatory fees at a college, university, vocational school, or other post-secondary institutions.

EE and I savings bonds are offered in 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 and local taxes, and federal taxes are deferred until redemption. Thus, taxpayers who qualify for the education savings bond program are not required to pay federal taxes at redemption.

Constraints on the program include:

The money can be used for the educational expenses for the bondholder, spouse, or child.

Purchasers of the bonds must be at least 24 years of age at the time the bond is issued.

The bonds are not available to high-income taxpayers.

The EE and I bonds must have been issued after 1989.

The taxpayer’s filing status must not be “married, but filing separately.”

Comparison of Education Savings Plans

CESAs

529 Plans

UGMA/UTMA Accounts

Education Savings Bonds

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 with after-tax dollars 

Withdrawals

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