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?

Answer

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.

GE 52232 (12/09)

Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.

If you are investing in a 529 plan outside of your state of residence, you may lose available state tax benefits. Make sure you understand your state tax laws to get the most from your plan.

529 plans are subject to enrollment, maintenance, administration/management fees and expenses. 529 plans are subject to fluctuation in value and market rise, including loss of principal.

Investors should consider the investment objectives, risks, charges, and expenses of 529 plans carefully before purchasing. More information about 529 plans can be found in the issuer's official statement. Please read the official statement carefully before investing.

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