Susan E. Thomas CPA
Newsletter
If I cash in U.S. savings bonds and contribute the proceeds to a 529 plan, can I still avoid paying tax on the proceeds?

Yes. You can roll over the U.S. savings bonds into a 529 plan if you meet all of the requirements for income-tax-free use of the savings bonds. If you own certain Series EE or Series I bonds, you may redeem them and exclude the interest from your income if you use the proceeds for qualified education expenses (tuition and fees) and if your modified adjusted gross income is below a certain level in the year of the redemption.

Rolling the proceeds over to a 529 plan is considered the equivalent of using the proceeds for qualified education expenses. So, meeting the income limitations in the year of the rollover will be the key to avoiding tax on the proceeds of the savings bonds.

Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.



Prepared by Broadridge Investor Communication Solutions, Inc, Copyright 2011