The tax bill from cashing in savings bonds may not be that burdensome. photo: shutterstock

Are Savings Bonds a Tax-Free Way to Pay for School?

Jan 02, 2014

Q: I have Series EE savings bonds I got when I was young. Can they be cashed in tax-free for my master's degree? -- Michelle D., Norwell, Mass.

A: That's unlikely, says Tom Adams, publisher of savings-bond-advisor.com.

Assuming the bonds are in your name, to qualify for a tax break, they must have been issued after 1989, and you must have been at least 24 years old at the time.

If someone else owns the bonds, such as your parents, the proceeds could be tax-free if you are a dependent on their tax return. Their eligibility, though, completely phases out with income above $142,050 ($89,700 for singles).

Still, tapping the bonds during grad school, and paying ordinary income tax on the interest, may not be burdensome. With an income below $72,500 ($36,250 if you're single), you'd pay no more than 15% on the interest.

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