The Help Desk

Your tough questions. MONEY's smart answers.
Presented by

Do we have to pay taxes on savings bond interest?

November 22, 2011: 5:05 AM ET

We understand that there is a provision in the U.S. tax code that allows for the proceeds from the sale of U.S. Savings Bonds to avoid taxation on accrued interest when they're cashed out to pay for college tuition. We'd like to use the money from our savings bonds for our granddaughter's education, and wanted to confirm that this is true. –G. U.

You are correct. You may be able to duck taxes on all or part of the interest on redeemed Series EE and I Bonds issued after 1989, if the principal and interest are used to pay qualified higher education expenses at an eligible university in the same year, according to the U.S. Treasury Department. But there are some catches, including income limits. For married taxpayers filing jointly, the amount of interest you can exclude starts phasing out at a modified adjusted gross income at $106,650 and you can't exclude any interest if your MAGI is $136,650 or more. Also, for education expenses to qualify, you have to use the bonds for your own education, your spouse's, or that of a dependent for whom you can claim an exemption.

If you claim your granddaughter as a dependent, then you're probably all set. (Just check out these other rules.) If not, you'll have to include the interest in your gross income for the year, just like everyone else.

--Kate Ashford

Got a question for the help desk? Send it to

Posted in: Family Money
Join the Conversation
Help Desk

Got a question about your money? We want to hear it! Each week we're answering your questions on CNN, Headline News and CNNMoney.com.

Your email or phone number won't be published; we'll use it to get in touch if we need more information about your question.
Help Desk Video
  • NEXT
    Not enough money in America's 401(k)s
    Despite the surging stock market bringing balances to record highs, the average Fidelity 401(k) account has less than $100,000 in it. That's just not enough. Play
  • NEXT
    BACK
    Explaining Obama's myRA
    President Obama unveiled a new savings plan for retirement accounts, aimed at encouraging people to start building their nest egg. But how exactly does it work? Play
  • NEXT
    BACK
    Tricks on how to save in your 20s
    Saving for your retirement in your 20s doesn't have to be a financial burden. Prioritizing your expenses is usually the first step in building a nest egg. Play
  • BACK
    Don't get fooled by Black Friday sales
    Here are some of the tricks that retailers use to make you think you're getting a deal. Keep an eye out for them while shopping this Black Friday. Play
Best Tips
Some of the nation's leading business owners, investors, and thinkers share their thoughts on rebuilding your wealth. More
These strategies can help you manage the challenges -- both emotional and financial -- of helping an aging parent from afar. More
You don't need to be fanatical to get to 780. Those in the know say these moves matter most. More
Featured Newsletters

Tips for saving and spending smarter.

Search This Column
View all entries from this: Week, Month
Help Desk
More help for your career, your investments and your budget.
Powered by WordPress.com VIP.