Thursday, February 15, 2007

Income Limits when using Savings Bonds for Education


My mother bought our daughters Savings Bonds so that they could be used for their education. The EE bonds were marketed as giving tax free interest if used for education.

Well, I went out to look at turning in some of our bonds, and I came across the limits needed to qualify for this tax free status.

Yup....it is a means test of income, and now that my wife has passed away, I am considered single and my means test level goes way down! (from $124,700 to $78,100)

Well....that pretty much makes my savings bonds 100% taxable.....not the savings my mother was hoping they would be. (I have included the verbiage on this taxable income limits from the SavingsBond.gov site below)

Luckily some of the bonds are in my daughters names, so I will look into turning some of those in. Each of them also have an I-Bond which is not getting very high interest, and after next month will be over 5 years old and this will allow it's sale without interest penalty. (and tax savings on interest when used for education)

Since they are both over 18 years old, the income limits are their own, and not that of their parents. At least we have a bit of tax savings out of these things.....otherwise, I am very disappointed. (I would be better off quitting my job for the next two years and taking advantage of all these tax situations as well as the FAFSA benefits of a low-income family.....but that would ruin my long-term retirement savings trajectory)

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Tax Year 2006 Income Limits

For single taxpayers, the tax exclusion begins to be reduced with a $63,100 modified adjusted gross income and is eliminated for adjusted gross incomes of $78,100 and above. For married taxpayers filing jointly, the tax exclusion begins to be reduced with a $94,700 modified adjusted gross income and is eliminated for adjusted gross incomes of $124,700 and above. Married couples must file jointly to be eligible for the exclusion.

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1 Comments:

Anonymous QUALITY STOCKS UNDER 5 DOLLARS said...

Excellent post on savings bonds.

3:30 PM EDT  

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