A Series EE Bond also known as a Patriot Bond is a low-risk investment whose earnings are usually subject to Federal income taxes. However, a savings bond education tax exclusion makes it possible for U.S. taxpayers to cash in bonds tax-free, when the money earned is used to pay for qualified higher education expenses in the same year that the bonds are redeemed. Examples of qualified education expenses include tuition and fees, but exclude room, books and board.
Tax Exclusion Criteria
Certain eligibility guidelines must be met in order to qualify for the tax exclusion. The bonds must be purchased by an adult who is at least 24 years of age, and the educational expenses must be applicable to a qualified vocational school, college or university. Additionally, bonds used for a child’s education cannot list the child as a co-owner or beneficiary, and married bond owners must file a joint return.
Bond-holders who meet the above guidelines must also fall within certain income limits in order to take the education tax exclusion on bond earnings. Income limits are based on filing status and modified adjusted gross income (AGI). Limits are adjusted from year to year for inflation, but as of 2012 any married couple with a modified AGI of $139,250 or more is ineligible for the tax exclusion.
Anyone who does not meet the guidelines of the EE Series Savings Bond education tax exclusion may qualify for other tax savings on college savings by opening and contributing to dedicated education accounts, such as a pre-paid education account, Coverdell education account or a 529 Plan. Each has different guidelines and benefits but all offer tax-savings when funds are used for qualified education expenses.
Another option to consider is the Gerber Life College Plan1 which is an adult life insurance endowment policy. The policy holder saves a fixed amount of money each month for a set period of time (or “term”), during which, the child’s parent(s) will enjoy full life insurance protection. When the term ends, the policy holder receives a guaranteed cash payout that can be used for the child’s college education or anything else, withut penalty. In addition to its flexibility, the Gerber Life College Plan is stable, and is guaranteed to maintain its monetary value over time.
To learn more about the Gerber Life College Plan, visit the Gerber Life website.
1 Policy Form ICC09-PIE