US I-bonds to 529 plan/ Tax question

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JTJjr
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US I-bonds to 529 plan/ Tax question

Post by JTJjr » Sun Oct 08, 2017 2:08 pm

We keep our income within the 15% tax bracket and want to stay that way. I want to roll some of our I-bonds into our 529 plans. I know my interest on the I-bonds will continue to be tax deferred as long as I transfer the money to our 529s within 60 days. However, is the interest treated as nontaxable income that could put us into a higher income bracket? Thank you for your replies. Peace, JTJjr
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clydewolf
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Re: US I-bonds to 529 plan/ Tax question

Post by clydewolf » Sun Oct 08, 2017 3:35 pm

You will use IRS form 8815 to report the transfer: https://www.irs.gov/pub/irs-pdf/f8815.pdf

You will receive a 1099-int showing you received the I bond interest and it will be reported on your 1040 schedule b line 1 along with your other interest, summed on line 2.

The excludable interest from form 8815 goes to schedule b line 3 where it is subtracted.

No, the I bond interest is not counted in your AGI or anywhere on form 1040.

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JTJjr
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Re: US I-bonds to 529 plan/ Tax question

Post by JTJjr » Sun Oct 08, 2017 7:06 pm

Thank you Clydewolf. This is just the information I was looking for. I appreciate you taking the time to be so clear and concise. Peace, JTJjr
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jmk
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Re: US I-bonds to 529 plan/ Tax question

Post by jmk » Mon Oct 09, 2017 1:06 pm

Oddly the 8815 form doesn't mention 529s. Does the 529 rollover need to happen the same year you spend on the educational expenses just as if you're using the bonds directly for education expenses? As an aside, is the rollover a way around the restriction on Treasuries for tuition only (no room and board or books)?

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JTJjr
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Re: US I-bonds to 529 plan/ Tax question

Post by JTJjr » Mon Oct 09, 2017 2:12 pm

JMK,

As I have read, the cashed I-bonds must be rolled into a 529 (529s are a qualified expenditure) within 60 days and this must occur within the year they are cashed in to avoid unnecessary taxes. JTJjr
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clydewolf
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Re: US I-bonds to 529 plan/ Tax question

Post by clydewolf » Mon Oct 09, 2017 2:49 pm

jmk wrote:
Mon Oct 09, 2017 1:06 pm
Oddly the 8815 form doesn't mention 529s.
The instructions for line 1, column b tell you what to enter here if this is a QTP (Qualified Tuition Program).
Does the 529 rollover need to happen the same year you spend on the educational expenses just as if you're using the bonds directly for education expenses?
No, this is simply transferring the bond tax deferred interest to a 529 plan. Once the money is properly deposited/contributed to the 529 plan, the 529 plan rules apply.
As an aside, is the rollover a way around the restriction on Treasuries for tuition only (no room and board or books)?
I suppose it could be used for that.

I don't understand all the talk about room and board for college expenses. We all have room and board expenses no matter what we are doing in life. Room and board should not receive any special tax treatment. When the students name appears on a tax return as a taxpayer or dependent, the taxpayer receives a personal exemption of $4,050 (2017). I think an extra tax break for room and board is not needed.

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Re: US I-bonds to 529 plan/ Tax question

Post by Mel Lindauer » Mon Oct 09, 2017 4:15 pm

The 529 Plan IS a qualified educational expense.
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ThisTimeItsDifferent
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Re: US I-bonds to 529 plan/ Tax question

Post by ThisTimeItsDifferent » Tue Nov 06, 2018 11:42 pm

clydewolf wrote:
Mon Oct 09, 2017 2:49 pm
jmk wrote:
Mon Oct 09, 2017 1:06 pm
Oddly the 8815 form doesn't mention 529s.
The instructions for line 1, column b tell you what to enter here if this is a QTP (Qualified Tuition Program).
Does the 529 rollover need to happen the same year you spend on the educational expenses just as if you're using the bonds directly for education expenses?
No, this is simply transferring the bond tax deferred interest to a 529 plan. Once the money is properly deposited/contributed to the 529 plan, the 529 plan rules apply.
Wait. Are you a saying that only the accrued interest has to go into the 529, or must the interest and original purchase amount go into the 529?

clydewolf
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Re: US I-bonds to 529 plan/ Tax question

Post by clydewolf » Wed Nov 07, 2018 2:57 pm

ThisTimeItsDifferent wrote:
Tue Nov 06, 2018 11:42 pm
clydewolf wrote:
Mon Oct 09, 2017 2:49 pm
jmk wrote:
Mon Oct 09, 2017 1:06 pm
Oddly the 8815 form doesn't mention 529s.
The instructions for line 1, column b tell you what to enter here if this is a QTP (Qualified Tuition Program).
Does the 529 rollover need to happen the same year you spend on the educational expenses just as if you're using the bonds directly for education expenses?
No, this is simply transferring the bond tax deferred interest to a 529 plan. Once the money is properly deposited/contributed to the 529 plan, the 529 plan rules apply.
Wait. Are you a saying that only the accrued interest has to go into the 529, or must the interest and original purchase amount go into the 529?
Good idea but NO.

The Education Savings Bond program requires the basis in the bonds and the interest be used for qualified education expenses in order for the interest to be tax free.

Here are many more details of the Education Savings Bond program: https://www.fastweb.com/financial-aid/a ... vings-plan

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