There’s a tradition in this country for parents and grandparents to buy treasury savings bonds for their children or grandchildren as a savings vehicle for college expenses. Before I Bonds came along, it was done primarily using series EE Bonds and primarily in paper form. You can still use I Bonds you buy in the online TreasuryDirect account for college expenses for your children or grandchildren.
Some taxpayers naturally assume the interest will be tax-free when they cash out I Bonds for college expenses. The redemptions can be tax-free but it’s not that easy to qualify. Many people intending to use I Bonds for college expenses end up not getting the tax exemption.
Not In Child’s Name
To qualify for the possible tax-free interest, the I Bonds must be in the name of a person age 24 or over at the time of purchase. This means if you put the I Bonds in a child’s name, they won’t qualify for the tax-free treatment (unless the child is already 24 when you buy the bonds for their graduate school or professional school expenses). The child can be a beneficiary on the bonds but not an owner.
On the other hand, if a child already owns the bond and the child has no other income, the child may owe zero tax anyway when the interest from cashing out the bond is less than the standard deduction.
Income Limit
Your modified adjusted gross income also must be under a set limit in the year you cash out the I Bonds for college expenses to qualify for the tax-free treatment. The income limit is adjusted for inflation each year. These are the limits in 2023 depending on your tax filing status:
| Full Exemption | Partial Exemption | |
|---|---|---|
| Single, Head of Household | $91,850 | $106,850 |
| Married Filing Jointly | $137,800 | $167,800 |
I track these limits for future years in Tax Brackets, Standard Deduction, 0% Capital Gains, etc.
It doesn’t matter what your income is when you purchase the bonds. To qualify for the tax exemption on the interest, your income has to be below the threshold in effect in the year you cash out. You won’t qualify for the tax exemption if your income will always be higher than the income limits.
Qualified Higher Education Expenses
The college expenses are limited to those for yourself, your spouse, or a dependent on your tax return. This means typically a grandparent or other relatives won’t qualify for the tax-free treatment when they cash out I Bonds to pay for college expenses for a grandchild or a niece or a nephew because the student isn’t a dependent on their tax return.
Only tuition and fees qualify. Room and board don’t qualify. The expenses also can’t be already covered by scholarships or another tax benefit such as 529 plan withdrawals, the American Opportunity tax credit, or the Lifetime Learning tax credit.
If you cash out more than the qualified education expenses, the interest is prorated by the qualified expenses relative to your total cashout. You can’t just assign 100% of the interest to the qualified expenses. For example, if you cash out $20,000 consisting of $15,000 in principal and $5,000 in interest but your qualified higher education expenses in the year are only $12,000, which is 60% of your cashed-out amount, then only 60% of the $5,000 interest is exempt from taxes.
Transfer to 529 Plan
If your income in the year when you expect to pay for college expenses won’t be under the income limit but you have a lower income in a year before that time, you can take advantage of the lower income by cashing out I Bonds and transferring the money to a 529 college savings plan or a Coverdell Education Savings Account.
The amount transferred to a 529 plan or Coverdell ESA for the benefit of yourself, your spouse, or a tax dependent also counts as qualified higher education expenses. When your lower income is below the income limit in effect for that year, you won’t pay tax on the interest.
Many 529 Plans have a separate line item on the contribution form (or a separate form) to indicate that the amount you’re contributing comes from savings bonds. For example, the Nevada 529 plan managed by Vanguard has a separate source of funds on the Additional Purchase Form to break out the principal and the interest from cashing out savings bonds. Utah’s my529 Plan uses this Liquidated Funds Transfer form and the required attachment to accept proceeds from savings bonds. If you use a different 529 plan, ask customer service what paperwork they need.
The amount transferred to a 529 plan for the benefit of a dependent still counts as a gift to the dependent for gift tax purposes in the same way as a cash contribution to the 529 plan.
Change 529 Plan Beneficiary
The initial transfer to a 529 plan must be for yourself, your spouse, or a tax dependent but a 529 plan allows you to change the beneficiary afterward.
This can be a great workaround if you’re a grandparent, an uncle, or an aunt. When your income is below the income limit, you cash out I Bonds and transfer the money to a 529 plan you set up for yourself. The I Bonds interest will be tax-free in the year of the cashout and transfer. You can change the 529 plan beneficiary next year to a grandchild, a nephew, or a niece.
If you have multiple grandchildren or nephews or nieces, you can split your account into multiple accounts with each of your grandchildren, nephews, or nieces as the beneficiary.
Changing the 529 plan beneficiary from yourself counts as a gift to the new beneficiary for the purpose of gift tax and generation-skipping tax.
Pay Down Student Loans
Paying down student loans for college expenses incurred in previous years doesn’t count as qualified higher education expenses in the current year. However, if you cash out I Bonds and transfer into a 529 plan, the 529 plan allows tax-free withdrawals of up to $10,000 per beneficiary in a lifetime to repay student loans. Your income in the year of the cashout and transfer still has to be under the income limit though.
The amount allowed in this workaround is limited but it’s better than nothing.
Form 8815
TreasuryDirect doesn’t know whether you used the money on qualified college expenses or transferred it to a 529 plan. They will still report the interest to the IRS and issue a 1099 form.
You will still have to account for the 1099 form when you do your taxes in tax software. See Report I Bonds Interest in TurboTax, H&R Block, FreeTaxUSA. After you add the 1099 form to the tax software, it will ask you whether you used the money for qualified education expenses. The tax software will see if your income qualifies for an exemption. If you qualify for an exemption, the tax software will generate a Form 8815 in your tax return.
***
The tax exemption on using I Bonds for college is much harder to qualify than a 529 plan. Grandparents and other family members must use a two-step workaround through a 529 plan. You also must meet an income limit when you cash out I Bonds, whereas there’s no income limit on a 529 plan. The interest on I Bonds will be tax-free only if you’re confident your income will be under the limit at some point. If your goal is to use the money for college expenses, it’s much easier to put the money in a 529 plan to begin with.
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David Rhoades says
Hello Harry:
I am a grandparent. Can the I-Bonds that I gift to my son, which he will use for educational expenses for his sons in the future, be interest-free when my son cashes them? Note: my son’s income will qualify for the educational-use interest deduction in the (future) years that he will cash the I-Bonds. Also, does it matter when I gift the I-Bonds to my son?
Note: My son would start cashing the I-Bonds 10 years in 2032.
Thank you.
Harry Sit says
That works. The I Bonds you gift to your son are the same as I Bonds he buys himself with his own money or with a cash gift from you.
Simon T says
Hmm, so it seems repaying student loan debt does not count as a qualified higher education expense… is that right? Any point in waiting to cash out I Bonds for this purpose then?
Harry Sit says
Student loan payments are currently on pause at 0% interest with no end in sight. Waiting to cash out I Bonds earns interest that matches inflation. If and when student loans start charging interest again, transferring up to $10,000 in I Bonds to a 529 plan allows tax-free withdrawal to pay down student loans.
Simon T says
Brilliant workaround plan, thank you!
Kris says
I presently have an ibond with 10,000 in interest. If I cash that in this year, can I open a 529 in my name and deposit that interest to avoid paying the tax on that interest? Then in the following year can I rename that 529 account for my grandson and can he use that in the future for college tuition? I think that is what I understood from the previous article. If I did that, what then would the tax issues be for me?
Harry Sit says
You avoid paying income tax on the $10,000 interest only if your income comes under the applicable limit and you file IRS Form 8815 with your tax return to claim the exemption. When you change the 529 plan beneficiary to your grandson next year, it likely will exceed the annual gift tax exclusion amount (maybe $17,000 in 2023). You’ll have to file a gift tax return on IRS Form 709. If your 529 plan allows, you can do a partial change of beneficiary over several years and stay under the annual gift tax exclusion amount.
Kris says
So do I have to open the 529 in my name with the full amount…..the purchase price of ibond and interest? Or can I open the 529 in my name with only the interest from ibond and receive the tax deduction? (If my income is under the correct amount). Then the following year, can I rename the beneficiary to my grandson and be within the gift tax exclusion? Can he use that money now in that 529 for any educational expenses or is it then limited to only tuition since it was from the ibond interest and was a tax deduction for me? This all sounds very complicated.
Harry Sit says
If you want to avoid paying tax on 100% of the interest, you’ll have to transfer the full amount (principal + interest) to your 529 plan. Otherwise your tax exemption will be prorated by the amount you put into your 529 plan over the full amount. If you have several grandchildren, you can also stay under the annual gift tax exclusion amount by splitting your 529 plan into several parts and changing the beneficiary for each part to a different grandchild. Once the money is in a 529 plan for a grandchild, it can be used for qualified higher education expenses allowed for 529 plan money. The specific allowable expenses are in IRS Publication 970 (starting on page 51).
You have these complications only when you want to avoid paying tax on the interest. If you simply pay tax on the interest, you don’t have to face these restrictions.
Anne says
Assume my income is under the limit for this year and the next few years. I could take out $5000 from my previously purchased $10k I bond (already >1 year), transfer to my 529 plan and won’t need to pay tax this year. Am I understanding this correctly? The reason I only transfer $5000 this year is because my state has state tax benefit with 529 plan funding, but only up to $5000 contribution.
Anne says
This sounds like double dipping in tax benefits to me (tax on the I bind interest, and state tax return), so I want to make sure I’m understanding correctly.
Harry Sit says
At the federal level, yes. Some states distinguish between a regular contribution to the 529 plan and a contribution from redeemed savings bonds. You should check the instructions from your state tax agency to see whether you’ll still get the state tax benefit from rolling over savings bonds to the 529 plan.
Anne says
My state tax website said roll over from another state’s 529 plan or tuition program is not eligible, and all other contribution methods are eligible. This sounds like I bond roll over is eligible, since savings/bond roll over wasn’t in the excluded list.
Scott Salone says
This is absolutely the best I-Bond site, thanks
I’m a grandparent with two college bound grandchildren. I understand I can transfer tax free I-bond redemption if, within 60 days, I transfer the money to my own 529 plans (two) where I am the beneficiary. Then the next year I can change the beneficiary to each of my grandchildren. Question: Do I need to create two new 529 accounts (remember there are two grandchildren) in my name with me being the beneficiary each year for 4 years since I changed the beneficiary to the grandchildren? Or is there an easier way?
Thanks
scott
Harry Sit says
The transfer from I Bonds redemption to your 529 plan account must be within the same calendar year, not within 60 days.
Changing the beneficiary to your grandchildren depends on the specific 529 plan. For example, under Utah’s my529 plan, which is one of the most popular 529 plans in the country, you can transfer your account balance 50/50 to two other accounts with each of your grandchildren as the beneficiary while leaving your source account open for next year. Here’s the form:
https://my529.org/wp-content/uploads/2016/12/400.pdf
Scott Salone says
thanks for your answer about “must be in same year” so redeem around december and send in money before end of year. Question: So if the next year i change the beneficiary from me to one/two of my grandchildren, then do i need to setup a new 529 with me being the beneficiary for that year or can I use last year’s 529 and after transferring money to the college, change the beneficiary back to me so i can fund it again?
thanks
Harry Sit says
Don’t cut it too close. If the money doesn’t land in the 529 plan by the end of the year, the interest will be taxable.
If your 529 plan allows a similar setup as the Utah my529 plan, you can open one account with yourself as the beneficiary and one account with each of your grandchildren as the beneficiary. Then you transfer from your account to their accounts next year but leave your account open. Pay college expenses from their accounts. Repeat in the subsequent years.
The transfer from your account to their account may count as a rollover and be limited to once per 12-month period per beneficiary. So space them out at least a year apart. If you transferred on January 5 last time, make the next transfer no earlier than January 6 of the following year.
Julie says
How can I purchase I-Bonds now for my children (minors) and benefit from the tax exemption for educational purposes? Buying the bonds now in their names does not work since both are under 24.
Can I buy them as gifts, designate my children as gift recipients and “deliver” the gifts when my kids are 18 or older to use “tax-free” for college expenses?
Or, are my kids already considered owners when I initially purchase the bonds and designate them as recipients? In that case, only bonds that I purchase in my name qualify for the tax exemption, if used for education expenses.
Also, what is involved when one cashes in the bonds? Are bank certifications necessary or are the funds automatically transferred to the bank account linked to the Treasury Direct account. I am often overseas for long periods of time. If the redemption process is too cumbersome, this could impact the realistic liquidity of my investment. (i.e., I can only redeem every 6 months when I return to the US).
Thank you.
Harry Sit says
You have to keep the bonds in your own name in order to benefit from the tax exemption for educational purposes. Buying them as gifts doesn’t work.
Cashing out the bonds is done through an online process (ManageDirect -> Redeem securities). The money goes to your linked bank account the next business day.
Koren says
Can I transfer the money from redeemed EE bonds to a 529 plan (with me as a beneficiary) tax-free even if my MAGI is higher than the limit for direct use for college expenditures?
Harry Sit says
No, you still have the same income limit whether you pay qualified expenses directly or transfer to a 529 plan.
Koren says
Thank you for a very prompt reply.
Katie says
I have an I Bond I purchased before my son was born. He is currently a sophomore in college with a small balance in his 529 account. Would it be best for me to wait until after I complete the FAFSA next year (when he’s a junior) before cashing the bond and transferring it to his 529 so that it won’t count as his asset on next year’s FAFSA? And then I can use the rolled—over I Bond money to pay for his senior year’s expenses and whatever is left over in his 529 after senior year can be transferred into my younger son’s name and used for his college expenses a few years later. Does that sound like the best way to make use of that money without my son having to claim it? Thank you for your help!
Harry Sit says
Money in a 529 account counts as parental assets. So does the I Bond in your name. Selling the I Bond and putting the money into a 529 plan doesn’t change the total parental assets for FAFSA. However, an I Bond purchased 20 years ago has a good fixed rate. You may want to hang on to it for a few more years and only cash it out when you use it for your younger son’s expenses, provided that you will still meet the income limit for the tax-free treatment.
Liz says
After I cash the I Bond and deposit to my own 529 plan, can I transfer the money to my niece’s 529 plan at the same year, or do I have to wait for the next year?
Thank you
Harry Sit says
Wait until the next year.
J says
Hello, 1. Can I bonds be purchased by my Roth IRA?
Harry Sit says
No, they can’t be purchased in an IRA.
Lori says
Hi! Is there still a partial tax exemption if income is just above the ‘total’ tax exemption limit? Trying to figure is I should cash a few to pay for her last couple Grad classes. It appears we would have just been over the limit this past year but I would take even a partial break if still offered.
And, she cannot cash them to use for school, correct?
Thank you!
Harry Sit says
The Income Limit section lists two numbers. You get a full exemption if your income is below the lower limit. You get no exemption if your income is above the upper limit. You get a partial exemption if your income is between the two numbers. It’s the parents’ income that matters when the bonds are in a parent’s name or both parents’ names.
Jane J says
“Many 529 Plans have a separate line item on the contribution form (or a separate form) to indicate that the amount you’re contributing comes from savings bonds.”
This is a quote from your detailed article above.
I am halfway through the process of cashing out some I bonds to deposit in my daughter’s 529 plan. I am doing this in 2023 as my income will be low this year and I can exclude the interest from these bonds. The bonds are cashed and cash is sitting in my bank account. The 529 plan is with Nevada, administered by Vanguard. When I’m looking at contributing to the account I do not see anywhere that I can indicate that this contribution will come from savings bonds.
Adding further to my confusion is that the Bogleheads Wiki says this:
“If you meet all of the conditions for qualifying for the savings bond qualified education expense exclusion, you can roll the qualified redemption proceeds into a 529 savings plan. The savings bond educational interest exclusion is filed on IRS Form 8815. Write “529 College Savings Plan” in the answer to 1(b), where it asks for the name of the educational institution.[2]. The 529 plan will require you to provide a breakdown of principle and interest of the bonds when you make the transfer. For savings bonds, this can be accomplished by sending the plan a copy of Form 8815 or a copy of the 1099-INT form you will have received from the institution that redeemed the bonds. Supplying this information to the 529 plan is critical. If the plan does not receive this breakdown between principle and interest, it will account the transfer as consisting entirely of earnings which are subject to income tax and a 10% additional tax if withdrawn as a non-qualifying withdrawal from the 529 plan. Principle is not taxed in a 529 plan withdrawal.”
How do I supply the 1099-INT to the 529 plan when I won’t get it until January 2024, when the contribution has to be completed in 2023?
Color me confused!
Harry Sit says
The Vanguard 529 College Savings Plan Additional Purchase Form Source of Funds option B includes “Indirect rollover from a qualified U.S. savings bond.” After you redeem the bonds, TreasuryDirect shows the taxable interest (“reportable proceeds”) under ManageDirect -> Manage My Taxes heading -> Year 20xx.
Amount: $xx,xxx
Reportable Proceeds: $x,xxx
Jane J says
Thank you for your reply. When I clicked on the pdf on the 529 plan site the link went nowhere. I now see on the treasury direct website how to get at the interim tax information for 2023 which I can print off to provide to the 529 plan with the contribution.
My worry now is that this contribution is an ‘indirect rollover’ and I rolled over my old original 529 plan with another provider to the Vanguard 529 plan earlier this year. Will this be a second rollover in 12 months and therefore ineligible? If so, a workaround may be to set up a second 529 plan for our daughter with my spouse as the owner (we file taxes jointly). I would prefer to have just the one 529 plan if possible for simplicity’s sake.
Jane J says
I’ll answer my own question here with an extract from an article on savingforcollege.com:
“If you’re moving funds from one 529 plan to another, it’s considered a rollover and can only be done tax-free once in a 12-month period. But what If you want to use the money from an existing Coverdell ESA to open a 529 plan? While this transaction will still be tax-free, it’s not considered a true rollover and therefore is not limited to once per 12-month period. The same applies if you redeem certain Series EE or I bonds purchased after 1989 by someone age 24 or older and deposit the proceeds into a 529 plan. There won’t be any tax consequences, and it won’t count toward your rollover limit.”
I would appreciate any comments on this. Who knew that what seems like a simple thing to do – redeeming savings bonds and depositing the proceeds into a 529 plan – would be quite so complicated in the execution?
Harry Sit says
The PDF form opens for me just fine. Indirect rollover from one 529 plan to another 529 plan is limited to once in a 12-month period. Indirect rollover from savings bonds isn’t limited.
Kris says
Can I redeem paper Ibonds and use them to set up my own 529 plan to avoid taxes on the interest? Then is it posssible to transfer from my plan to my grandsons 529 plan that is already set up by my children for my grandson the following year? Or does it have to be a totally new 529 plan that I set up for him? I realize that I have to set up my 529 with the entire redemption amount that includes original bond amount and interest. When I transfer it, is this then considered a gift to my grandson? Could I divide this money and transfer to 2 529 accounts that are already been set up for my 2 grandchildren?
Harry Sit says
It doesn’t matter whether you have paper bonds or electronic bonds. You still have to meet the income limit. It’s not clear whether you can transfer from your plan to a plan set up by your children but it’s also unnecessary. Changing the beneficiary from yourself to your grandchildren while keeping yourself as the owner already accomplishes your goal of avoiding taxes on the interest. You don’t have to make it more complicated by also changing the owner to your children. You can split your account into two when you change the beneficiary.
Mike says
I bought I Bonds 2 years ago for my living trust (that uses my ssn as tax id) to get extra I Bond space. Typically living trusts are just considered the individual for most tax purposes. In this scenario would cashing the living trust I bonds and rolling to 529 work for the interest exemption. Does the living trust purchase count as being purchase by me (who was over 24 at time of purchase:) h
Thanks!
Harry Sit says
From Form 8815 Instructions:
“To qualify for the exclusion, the bonds must be series EE or I U.S. savings bonds issued after 1989 in your name, or, if you are married, they may be issued in your name and your spouse’s name.”
A literal reading says bonds issued in the name of a trust aren’t issued “in your name.” The requirement is on whose name the bonds were issued in, not on who pays tax on the interest when the bonds are redeemed.
Jorge says
Harry, thank you for posting on this topic. But It seems the California 529 plan is more strict on the 60 rule. Their Additional Contribution Form requires and states that the “U.S. Savings Bond that was redeemed within the last 60 days”. This was confirmed when I called the Plan. I guess States are allowed to have stricter rules for the Savings Bond rollovers. I currently have a California 529 (established for my children many years ago) but I will probably open another 529 with another State. Any problems with having more than one 529 plan (in a different State)?
Thank you!
Harry Sit says
You can have another 529 account for the same beneficiary with a plan sponsored by a different state. California doesn’t give any tax incentive for contributing to a California 529 plan. You won’t lose anything when you go elsewhere.
Sean Paul says
Continuing the theme of other comments, I am still confused about the need to report your contribution as an indirect rollover from a Savings Bonds redemption. If you just make a normal contribution to the 529 without following the 60-day rule or identifying the funds as from a Savings Bond, you’re still eligible for the interest exemption, right? I can’t find anything in the IRS instructions that requires that, just that the savings bonds were redeemed in the same year as the 529 contribution (assuming all other requirements are met).
Furthermore, isn’t it preferable to have the entire Savings Bond redemption amount classified as a contribution to the 529 instead of the contribution being split into contribution and earnings?
Harry Sit says
You’re required to split into contribution and earnings for potential non-qualified withdrawals. It would be a huge loophole if you get to classify the whole amount as a contribution. Then everyone would just contribute to a 529 account and immediately take the whole thing out tax free as a non-qualified withdrawal because the tax and penalty on a non-qualified withdrawal are only on the earnings portion.
Sean Paul says
I get that, and agree that the intent is to not allow tax-exempt interest to flow into a 529 as a contribution. However…
Money is fungible. Once the Savings Bond is redeemed and comingled with other funds in an account, it’s impossible to isolate funds within that account as having different characteristics. And if you do make a 529 contribution with funds that are completely different from the Savings Bond redemption (e.g. a 529 contribution made before the Savings Bond is redeemed later in the year), you are still eligible for the tax exemption on the interest.
So while the 529 custodians seem to have a mechanism in place to report indirect rollovers from Savings Bond redemptions, it does not appear that the IRS actually requires you to do that to claim the exemption from interest. This does create a “loophole” opportunity, but I think it is still legitimate to opt to make a regular 529 contribution in the same year that you redeem Savings Bonds with an interest exemption, particularly if the 529 is not established for the intent of avoiding taxes.
Harry Sit says
The tax code that allows the tax exemption on the interest is Internal Revenue Code section 135. 135(c)(2)(C) gives the specific qualifications on the contribution to a 529 plan:
“(C) Contributions to qualified tuition program and Coverdell education savings accounts
Such term shall include any contribution to a qualified tuition program (as defined in section 529) on behalf of a designated beneficiary (as defined in such section), or to a Coverdell education savings account (as defined in section 530) on behalf of an account beneficiary, who is an individual described in subparagraph (A); but there shall be no increase in the investment in the contract for purposes of applying section 72 by reason of any portion of such contribution which is not includible in gross income by reason of this subparagraph.”
https://www.law.cornell.edu/uscode/text/26/135#c
The last part “there shall be no increase in the investment in the contract for purposes of applying section 72 by reason of any portion of such contribution which is not includible in gross income by reason of this subparagraph” means that you must report the split to the 529 plan in order to get the tax exemption. If you just do a normal contribution either before or after redeeming the savings bonds, your “increase in the investment in the contract for purposes of applying section 72” would include the interest, which disqualifies the tax exemption.
Wiliam says
Question 1: The income level of grandparents applies in the year of transfer to the 529 Plan and not at some future time when the grandkid accesses the funds. 2) Some sites say that the tax exclusion applies only to funds used for tuition; other sites say room & board qualify also. Which is it?
You have a very good website..the best I have found, so far.
Harry Sit says
The income level of grandparents in the year they sold savings bonds and generated interest income applies among other requirements to determine whether such interest income is exempt from taxation. After the money gets into a 529 plan, it doesn’t matter who has how much income when the money is used.
Qualified Higher Education Expenses for a tax-free distribution from a 529 plan include room and board, subject to certain requirements. See IRS Publication 970.
“Expenses for room and board must be incurred by students who are enrolled at least half-time (defined later).
The expense for room and board qualifies only to the extent that it isn’t more than the greater of the following two amounts.
a. The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
b. The actual amount charged if the student is residing in housing owned or operated by the school.
You may need to contact the eligible educational institution for qualified room and board costs.”
If you cash out savings bonds to directly pay education expenses for yourself, your spouse, or a dependent, which isn’t the case when a grandchild isn’t a dependent of the grandparent, the qualified education expenses don’t include room and board.
William says
Thanks for the assist to my last inquiry. Another question: If the joint income of a married couple is over the income limits for tax free treatment, can they file as married filing separately where one member of the couple falls under the income limit for an individual (approx. $91,000), and thereby qualify for the favorable tax treatment of the I-Bonds being cashed out? And if so, can that member cash out (transfer) only I-Bonds in his or her name to the 529 plan, or is there a way to also transfer I-Bonds in the spouse’s name ?
Harry Sit says
No. You can’t exempt any interest if you file as married filing separately regardless of income.
DIANE M WABBE says
I am a grandparent and added Series E bond principal and interest to a 529 plan I set up for myself. I have added Series E bond interest/principal to my 529 plan over the last three years. Can I now simply transfer my 529 plan amounts equally to the 529 plans I set up for my four grandchildren.
After I do that, can I continue to cash in my Series E bonds, add to my 529 plan in 2024 and then transfer to my four grandchildren’s plans in 2025. Just want to make sure I understand the process correctly. Thank you for your help.
Harry Sit says
I would do only one type of activity in any given year. If you’d like to transfer out/change the beneficiary this year, wait until next year to cash out more savings bonds and contribute the proceeds to the 529 plan. If you’d like to cash out more savings bonds and contribute to your 529 plan account this year, wait until next year to transfer out/change the beneficiary. Pick one or the other. Don’t do both in the same year.
Please check with your 529 plan administrator on the specific procedure to change the beneficiary. Some plans replace the beneficiary on an existing account. Some plans ask you to create a separate account and transfer from one account to another.
Brad Mintz says
Apologies if you covered this, but I’m curious if I can rollover I-Bond proceeds from my wife’s Treasury Direct account into a NC 529 Plan registered to me as the participant, with my child listed as beneficiary and my wife as the successor.
Brad says
“The initial transfer to a 529 plan must be for yourself, your spouse, or a tax dependent but a 529 plan allows you to change the beneficiary afterward.”
I believe this implies that it should not be a problem to roll over I-bonds owned by my wife into an NC 529 plan registered to me.
I’ll confirm with the plan to be sure.
Spring says
My mother passed away earlier this year, and had 5 iBonds with significant accrued interest. I was named as the Transfer on Death beneficiary, and I’m in the process of getting the iBonds re-registered in my name. I have 529 accounts for both of my daughters – age 14 and age 20 (in college and still noted as my dependent). Assuming we meet the income parameters, am I able to take advantage of selling the iBond and contributing to their 529’s to avoid taxation on the interest, or does that not work since I wasn’t the original purchaser? If I am eligible, do I need to hold the iBonds in my name for a certain period of time prior to liquidating? Thanks for any insights!