What is An Education Bond?

For decades US Savings bonds have been a safe and effective way for consumers to invest their money while providing loans to government agencies that were strapped for cash. Aside from ensuring that your principal will not be depleted and offering a relatively decent rate of return, US Savings bonds, especially Education bonds, also have tax incentives for consumers.

An Education bond is a standard US Savings bond that has been cashed out specifically for the use of paying the cost of higher education for oneself, spouse or dependent to claim an exemption on their return. To further qualify for the tax benefit in the case of a spousal education payment, the married couple must file a joint return; and for all types of claims the modified adjusted gross income (MAGI) must be less than $80,600 ($128,400 if married filing jointly or qualifying widow(er).



If you are utilizing an Education bond, the sale of the US Savings bond will be able to be an income tax-free transaction, because usually the profit from the sale of a US Savings bond is considered taxable income. The qualified U.S. savings bond for an Education bond benefit is a series EE bond issued after 1989 or a series I bond. The owner of the bond must be at least 24 years old prior to the bond issue date and the bond must be issued either in your name (as the sole owner) or in the name of both you and your spouse (as co-owners).

To get the full tax benefit of an Education Bond the money must be used to pay for qualifying educational expenses (enrollment costs, tuition and fees at eligible educational institutions). The money cannot be used for additional expense such as room and board, or for courses involving sports, games, or hobbies that are not part of a degree or certificate-granting program.