<p>Hi
My sister cashed in savings bonds for her daughter's education but feels she was penalzied when she filled out her taxes. When she cashed them, they used her husbands social security number and she expected that the interest would be tax exempt. Sounds like she didn't really know the rules related to being eligible for this exemption. Where is the best place to get the rules on this.</p>
<p>My daughter will be entering college next year, we expect no financial aid because of our income. We also have savings bonds for our daughter and were planning on using them for college. I would like to get more information so I am educated on this before I decide to use them for college. Thanks</p>
<p>The answers to using savings bonds are here. You really need to read the limitations to understand when and how the interest is exempt. Do so before cashing them. We looked at them too. We have them but the restrictions are so that we will not be able to exempt the interest from taxes. </p>
<p>FinAid has an abbreviated discussion on this also. It is VERY easy to run afoul of a restriction. While a wonderful teaching aid for children, Savings Bonds have several limitations in the adult world. Interest rates are not competitive. The bonds need to be protected. (You receive no annual statement, and replacing a bond can be problematic.) Some bonds can't be converted without triggering income tax on the accrued interest. And then there are bank issues. My local bank will only cash eight bonds per day. And when my Mom died, the bank requested that her bonds be reissued to "Estate of" before they could be cashed. She had several hundred bonds in small denominations.</p>
<p>I've been very happy that we had savings bonds in the college portfolio. While the interest rates are not competitive over the long haul, the >5% yield has looked very nice lately... ;-) We also have 529s for the kids but the bonds were a nice part of the mix and we had them in the kids' names so that the tax bite was lessened.</p>
<p>We have a bunch of these from 20 years ago and they're still going. Last I checked they were paying a good return but that was probably a year ago.</p>
<p>My Treasury Money Market fund is paying 0.17% right now so 1.3% sounds pretty good. I would doubt that we would get the tax-free part given the income limitations.</p>
<p>For those with large numbers of bonds to redeem, you can convert them to electronic entry bonds and then direct the treasury department to deposit them into your bank account. It's a cumbersome process, but would beat going to the bank every day for months.....
Somehow in all the holiday happenings, D "forgot" to finish the process, so hers (gifts from Grandma over the years) are still sitting here. Next semester!</p>
<p>Our EE bonds are all paying the 4% guaranteed rate, and the I bonds we bought in 2000 are at 8.6%. I'm happy with those returns for my cash. I had forgotten about using them for tuition, I think we will qualify, for those issued after 1989 anyway. Thanks!</p>
<p>That 4% rate is closer to what I remembered when I last looked at it. Actually we may be better off just holding the bonds instead of using them to pay college expenses.</p>