Series EE Bonds for Education Savings

Definition
A Series EE bond is a type of savings bond issued by the federal government. It can be purchased from most neighborhood banks and savings institutions, or directly from the government. A Series EE bond is available in face values ranging from $50 to $10,000, and you can purchase the bond in electronic form at face value, or in paper form at half its face value (e.g., if you want to buy a $50 bond, you pay $25 for it).
If the bond is used to pay qualified higher education expenses and other requirements are met (including income limitations), you pay no federal income tax on the bond's earnings.

Prerequisites
For the earnings of a Series EE bond to be exempt from federal income tax, you must meet all of the following requirements:

  • The bond proceeds must be used for qualified higher education expenses (generally tuition and fees, not room and board)
  • The bond must be issued in 1990 or later
  • The bond must be issued in the name of one or both parents (not the child's name)
  • Married taxpayers must file a joint return
  • The owner (purchaser) of the bond must be at least 24 years old
  • The bond must be redeemed (cashed in) by the owner in the year it's used to pay the education expenses of the owner, his or her spouse, or his or her dependent(s)
  • The owner must fall within established income restrictions

 

Even if you don't meet all of the above requirements, you can still purchase Series EE bonds to save for your child's college education. You will just have to pay federal tax on the bonds' earnings.

Key Strengths

  • Earnings may be exempt from federal income tax in some cases
  • Earnings are exempt from state and local income taxes
  • Bonds are backed by the full faith and credit of the federal government
  • Easy to purchase and redeem

 

Key Tradeoffs

  • Limit on amount of bonds you can buy in one year
  • Relatively low yield
  • Penalty for early redemption
  • Minimum waiting period before redemption allowed

Variations from State to State

  • None

    • How Is It Implemented?

  • Purchase at your local bank or savings institution, or directly from the government

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