Tax Free Redemption for Education

A very attractive feature of US savings bonds is their tax free redemption for education. Any US savings bonds holders can rollover their US savings bonds into an Educational IRA or a 529 plan providing certain requirements of the tax free redemption for education are met.

Rollover of US savings bonds tax free

Many US savings bonds owners now rollover their US savings bonds that have reached their maturity dates into educational IRA or 529 plan. This is because through tax free redemption for education of US savings bonds, the interest income earned from the US savings bonds remain federal and state tax exempt.

What educational expenses can a tax free redemption for education of US savings bonds be used?

You can redeem US savings bonds to pay for qualified higher education expenses such as tuition and fees. Any rollover into a 529 plan or a Coverdell educational savings accounts will also qualify. That means you can rollover any amount of US savings bonds tax free but if you redeem US savings bonds, you cannot redeem more than the amount of qualified higher education expenses.

Tax free redemption and scholarship or financial aid

If you qualify for scholarships, fellowships, employer provided educational assistance and other tuition reduction programs, then the amount of tax free redemption of your US savings bonds may be reduced.