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Education savings bonds







Education Savings Accounts







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Education savings bonds

The federal government's Education Savings Bond Program allows you to exclude from income some or all of the interest you earn on savings bonds provided you use the proceeds to pay for college expenses.

Savings bonds must be either Series EE or Series I bonds issued since 1990. In order to exclude the interest from income, the bonds' principal and interest must be used to pay for qualified educational expenses in the year you cash in the bonds. The expenses can be for you, your spouse, or a dependent.

You can exclude interest income for an amount that is equal to the amount of qualified educational expenses in the same year. For example, if your expenses are $4,000 and you have $5,000 in maturing bond principal and interest, you can exclude 80% of the interest earned from income.

You may wish to keep in mind the following requirements of the Education Savings Bond Program:

  • Age, ownership, and tax filing requirements. You can be any age and still own eligible savings bonds. The bonds must be registered in yours or your spouse's name. A dependent can be designated as beneficiary. If married, you must file a joint tax return.

  • Coordination with other sources of financial assistance. You must reduce your eligible educational expenses by the amount of scholarships, employer-paid assistance, or other financial aid you receive.

  • Yearly purchase limits of bonds. You can buy up to $10,000 per year in face value of either Series EE/E or Series I bonds. If you are married, you and your spouse can each buy up to $10,000 per year in savings bonds.

  • Income limits. The tax-deductible benefit of the bond savings program has income limits that determine whether you can take a full or partial deduction. The following table shows the levels of modified adjusted gross income (MAGI) that you can earn in 2021 before your tax deduction is phased out.

  • You lose the entire income exclusion altogether at higher incomes. For single persons, the income exclusion is completely phased out when income is more than $98,200 in 2021. For married persons filing a joint return, the tax deduction disappears when income is more than $154,800 in 2021.

Tax Filing StatusNo Phase-outFull Phase-out
Single$83,200$98,200
Married filing jointly$124,800$154,800

Even if you are ineligible to participate in the Education Bond Savings Program, you can still buy savings bonds to pay for your child's college. The tax treatment is a little different, however. For 2021, the first $2,200 in interest is taxed at your child's rate, if the child is under age 18 or is a student age 19-23. This amount is indexed yearly for inflation. Interest earned in excess of that amount is taxed at the parents' highest marginal income tax rate for tax years prior to 2018. For tax years 2018 through 2025, the higher levels are taxed at rates applicable to trusts and estates as provisioned in the Tax Cuts and Jobs Act. This provision sunsets and does not apply to taxable years after 2025. When your child turns age 18 and is no longer a student age 19-23, however, all the interest on these bonds is taxed at the child's rate.

For more information on buying U.S. savings bonds online, see the U.S. Treasury's TreasuryDirect website.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.

Next, we'll take a look at using Coverdell education savings accounts, formerly called education IRAs, to save for future college expenses.


Next Topic: Education Savings Accounts
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