Why Savings Bonds Can Be a Smart Way to Pay College Tuition

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Hint: It involves the IRS.

Have any old U.S. savings bonds lying around your safe deposit box? If so, you may be able to cash them in, tax-free, to pay college tuition.

As with most things tax-related, there are a few restrictions:

  • You need to have been at least 24 years old when the bonds were issued (which makes this tip more applicable to parents and people returning to college in midlife than to younger students who might own savings bonds).
  • The bonds must be of the Series EE or Series I variety and issued after 1989.
  • The tax exclusion phases out if your modified adjusted gross income is above a certain level, currently $91,000 for singles and $143,950 for joint filers or qualifying widows or widowers.

The IRS explains the details in Publication 550, and you can calculate your exclusion using Form 8815.

Another reason to check your old savings bonds: Series EE or Series I bonds issued more than 30 years ago have stopped earning interest, so it’s time to cash them in anyway.

For more advice on paying for college and to see our latest rankings of “The Best Colleges for Your Money,” visit the new MONEY College Planner.

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