savings bonds

My son is leaving for college this fall and I just realized that the savings bonds that his grandparents purchased for him are not eligable for tax free interest because he is listed as the owner(I am co-owner). Is there anything I can do other than have them reissued? If not how long does this typically take?

I do not know the answer to your specific question, but I found this interesting item in IRS Pub. 970:

http://www.irs.gov/pub/irs-pdf/p970.pdf

"Qualified U.S. savings bonds. [...] The owner must be at least 24 years old before the bond’s issue date."

How the heck does that work out? Doesn't the typical college student graduate at or around age 22?

Jeffchris3,

I am guessing these are paper savings bonds, either EE or I.

It appears as though the bonds would need to be cashed and then reissued with your name as owner. Unfortuantely this is a taxable event so there would be no benefit gained by doing that manuver. You may just as well cash the bonds and use the funds for college expenses.

Here is a link with information about replacing or reissuing the bonds: http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eereplace.htm

And the next link has the finer point of Savings Bond Tax Considerations: http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eetaxconsider.htm

Look at the bright side, you have the gift from Grandma and Grandpa, tax free.

Dingobisquit,

The owner of the bond must be age 24 or greater when the bond is purchased.
Then they can cash the bonds and not pay tax on the interest the bonds earned when used to pay for qualified education expenses.

When the parent buys the bond for education purposes the parent needs to be the owner.

The same is true for Grandma and Grandpa, G&G need to be the bond owner and write the check to the school.

You know Tax Laws and Rules do not need to make sense.

Clyde has the answer...Just out of curiosity, what type of bonds are they EE?

Dingobisquit,

The owner of the bond must be age 24 or greater when the bond is purchased.
Then they can cash the bonds and not pay tax on the interest the bonds earned when used to pay for qualified education expenses.

When the parent buys the bond for education purposes the parent needs to be the owner.

The same is true for Grandma and Grandpa, G&G need to be the bond owner and write the check to the school.

You know Tax Laws and Rules do not need to make sense.
Clide,

That is good to know, but very "fine print-y." It almost rings "buyer beware," but I assume most of the under-24 crowd don't purchase the majority of the savings bonds issued by the Treasury.

I wonder how many folks have made the mistake of buying savings bonds in the child's name. Heck, I even bought my younger brothers savings bonds when I was in my early 20s once or twice, so those don't even qualify.

Even the ones I purchased for myself before I turned 24 don't qualify!

Sheesh!

Dingobiscuit,

I imagine a lot of folks buy savings bonds in their chidren's or especially grandchildren's names thinking they can use the interest tax free for qualified college expenes.

If a child has these bonds, they should be cashed and the funds used for something about 2 years before the FAFSA is filed. But if this is a small amount of money, then using the bonds to pay for college expenses would be OK too.

The bond must be purchased by THE OWNER OVER THE AGE OF 24 AT THE TIME OF PURCHASE to be have TAX FREE Interest for Qualified Education Expenses.

I recently learned these bonds can be cashed and the entire proceeds contributed to a 529 plan without any tax consequences when the 529 plan is used for qualifying education expenses.

http://www.kiplinger.com/basics/archives/2003/02/529faqs.html#bonds

I believe that this is a way around the "dependent" requirement on EE bonds for education...

When EE bonds are used directly for educational expenses, the qualifying expenses must be for you, your spouse, or your dependent (must claim as a dependent on your tax return). This excludes grandparents from using EE bond proceeds for their grandchildren, for example.

With the advent of the ability to use EE bond proceeds tax free as contributions to a 529 plan, this restriction is removed, as far as I can tell.

BlankenshipFP,

Yes, your description is better and accurate.