Recently, a blog visitor was searching on the term “EE Savings Bonds,” “Tax Free” and “parochial school.”
Evidently, this visitor has a child in a private elementary or secondary school. With good planning and generous help from family and friends, he has a number of EE series savings bonds in the child’s name.
Given the tax breaks available for certain higher-education expenses and the increasing costs of private elementary and high schools, it’s a very valid question.
The answer: No.
Unfortunately, there is no tax advantage for cashing in EE Savings Bonds to pay for private or parochial school tuition and expenses.
The Internal Revenue Code does provide a tax-free incentive to cash in Savings Bonds for qualified higher education expenses subject to certain adjusted gross income limits. These qualified education expenses are broadly defined and include tuition, fees and certain equipment incurred in pursuing a post-secondary school degree or vocational program. Theses expenses must be incurred at an eligible institution of higher learning which includes virtually all accredited public and private colleges and vocational programs in the US as well as certain participating programs overseas.
Education Savings Bond Programs are described in IRS Publication 970 and can generally be found on page 60 and also on Form 8815 “Exclusion of Interest From Series EE and I US Savings Bonds Issued After 1989.”
The better bet for this parent will be to hold onto the Savings Bonds until after the child is enrolled in college. Because of certain financial aid requirements it may actually be best not to sell them during the student’s high school senior year because of the base year calculation of the Expected Family Contribution.
For more specific help in developing a tax and financial aid plan, consider my exclusive College Planning Services.
Call the College Planning Helpline at 978-388-0020.