Rolling Over Savings Bonds into a 529 College Savings Plan

<b>I have several thousands of dollars in Series EE savings bonds. I know that you can use the bonds relatively tax free if cashed and used for qualified educational expenses, which includes contributions to a qualified tuition program such as a 529 college savings plan. If so, what is the process for doing this? — A.J.K. You are correct! Series EE savings bonds can be transferred to a 529 college savings account or other education savings account (ESA) with no penalty. If the savings bond funds are used for qualified education expenses or rolled over into an ESA, you do not have to include them as income, which is especially helpful when filing the FAFSA (Free Application for Federal Student Aid) or taxes. You cannot transfer the bonds directly to an ESA. Rather, the bonds must be redeemed, and then they can be deposited into a 529 college savings account. When redeeming the bonds, you only have 60 days to deposit them into an ESA, and this must be done within the same tax year. If you do not meet the 60-day deadline or you transfer them between two different tax years, the savings bond interest becomes taxable.

Student Assets on FAFSA

It is in your best interest to have the bonds issued in the parent’s names and not the student. The child can be listed as a beneficiary, but they cannot be a co-owner. If they are listed as an owner, it will be counted as a student asset, which will not help them qualify for financial aid. If the child is listed as a co-owner, there is a process for removing their name:

1. Paper bonds can be transferred using this form.
2. If the savings bonds were bought through TreasuryDirect using a minor-linked account, login to the account and file form PD F 5446.
3. If the bonds were purchased through TreasuryDirect and are not a minor-linked account, you can simply login and update the savings bond registration directly.

The rule of thumb to save in the parent’s names does not just apply to savings bonds; it applies to all student assets. Anything saved in the student’s name is judged more harshly on the FAFSA. Having any assets in their name could mean less financial aid. While it’s ideal to begin saving for college as soon as your child is born, it’s never too late to start. You can open a 529 savings account, or other ESA, at any point – even if your child (or children) are in high school. A dollar saved is one less dollar you may have to borrow in order to finance your child’s education, and no college savings amount is too small to help with college costs. You may not be able to cover college tuition entirely, but a few hundred dollars could help pay for books or a laptop.

Other College Tuition Funding Sources

If you’re looking for ways to pay for college outside of savings and merit or financial aid, you do have a few options:

1. Non-institutional scholarships and grants: Your child’s college or university will likely distribute a merit aid package when they deliver the admission decision. These are institutional awards. However, there are hundreds of thousands of scholarships out there from private organizations, non-for-profits, and community organizations. By filling out a profile on Fastweb, your child can get matched to scholarships that they actually qualify for – and it’s free!
2. Part-time jobs and paid internships: Your child can work part-time throughout the semester or when they’re home for winter and summer breaks. Money from these opportunities can be utilized to cover college costs, and they’ll also work to enhance your child’s resume. Some employers are even offering tuition assistance to part-time employees. It’s worth exploring those options to get help paying for college.
3. Education tax benefits: Each year, you are eligible to claim one education tax credit per child, or parent if you are enrolled in continuing education as well. The Lifetime Learning Tax Credit can be claimed for up to $2,000, while the American Opportunity Tax Credit is worth up to $2,500.

There is some strategy involved in paying for college these days. Only a very lucky few are able to pay the full amount with scholarships. Great job getting a head start by saving, and don’t forget to explore all college tuition funding sources to meet your goals.