Susan E. Thomas CPA
If I cash in Series EE U.S. savings bonds I purchased 10 years ago 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 savings bonds (which may also be called Patriot bonds) or Series I bonds, you may redeem them and exclude the interest from your income if you use the proceeds for qualified higher education expenses (tuition and fees) and if your modified adjusted gross income lies below a certain level in the year of the redemption.

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

Prepared by Broadridge Investor Communication Solutions, Inc, Copyright 2011