I-bonds to 529, tax exemption

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CharlesNorris
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I-bonds to 529, tax exemption

Post by CharlesNorris » Tue Nov 06, 2018 7:57 pm

Does anyone have experience with getting a tax exemption on earned interest from an I-bond when that money is deposited into a 529 account? While googling this topic it seems like a possibility that leads to form 8815 but nowhere on this form does it mention depositing money into a 529. I have 1 I-bond under my name and one I-bond under my wives name that I want to deposit into a 529 and when I called treasury direct today they said you can't get tax exemption on interest earned for this scenario. He just said contact a tax specialist but its not possible. Has anyone dealt with this before? And if so what were the steps in making this happen? Thanks

CharlesNorris
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Re: I-bonds to 529, tax exemption

Post by CharlesNorris » Tue Nov 06, 2018 8:14 pm

found the answer here
viewtopic.php?t=229334

This board is amazing. I should have checked here first. The answer is above if interested.

kaneohe
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Re: I-bonds to 529, tax exemption

Post by kaneohe » Tue Nov 06, 2018 9:45 pm

https://forum.savingforcollege.com/t/st ... -tax/11759

The 2 links within the article are also useful.

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jeffyscott
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Re: I-bonds to 529, tax exemption

Post by jeffyscott » Wed Nov 07, 2018 8:15 am

CharlesNorris wrote:
Tue Nov 06, 2018 7:57 pm
Does anyone have experience with getting a tax exemption on earned interest from an I-bond when that money is deposited into a 529 account?
I have not, but we are in the process of doing this. You may find the 529 plan is not really set up to handle this very well either. Ours has a place on the form where you indicate the funds are from a 529 rollover or savings bonds and list the cost basis and interest. For savings bonds, they say to include the 1099.

When I told them there would be no 1099 until Jan, they said:
...the institution that cashes the savings bonds will generate a 1099 form. However, if the 1099 is not available, please include a statement, or the check stub, that reflects the breakdown of the bonds' principal and earnings. Without this breakdown your rollover will be processed, but the amount you send to the Plan will be coded as 100% earnings.

They are apparently unaware that TD exists and how it works. So I have had to explain that and what sort of documentation I can get from the TD site. Hopefully it works, if not, I would assume that I will be able to get this corrected once I can print the actual 1099. Also, it won't matter if the funds are used for qualified expenses, but I don't want to risk having to pay taxes on the principle if they are not.
press on, regardless - John C. Bogle

CharlesNorris
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Re: I-bonds to 529, tax exemption

Post by CharlesNorris » Wed Nov 07, 2018 10:24 pm

jeffyscott wrote:
Wed Nov 07, 2018 8:15 am
[quote=CharlesNorris post_id=4201615 time=<a href="tel:1541552256">1541552256</a> user_id=117770]Does anyone have experience with getting a tax exemption on earned interest from an I-bond when that money is deposited into a 529 account?
I have not, but we are in the process of doing this. You may find the 529 plan is not really set up to handle this very well either. Ours has a place on the form where you indicate the funds are from a 529 rollover or savings bonds and list the cost basis and interest. For savings bonds, they say to include the 1099.

When I told them there would be no 1099 until Jan, they said:
...the institution that cashes the savings bonds will generate a 1099 form. However, if the 1099 is not available, please include a statement, or the check stub, that reflects the breakdown of the bonds' principal and earnings. Without this breakdown your rollover will be processed, but the amount you send to the Plan will be coded as 100% earnings.

They are apparently unaware that TD exists and how it works. So I have had to explain that and what sort of documentation I can get from the TD site. Hopefully it works, if not, I would assume that I will be able to get this corrected once I can print the actual 1099. Also, it won't matter if the funds are used for qualified expenses, but I don't want to risk having to pay taxes on the principle if they are not.
[/quote]

Well I'm going to give it the old college try here in a few days. I'll check back in once it is completed and income taxes are finished. I hope it goes smooth but the TD guy didn't ease my anxiety too much when he didn't know it was an option. Thanks for the reply and your experience.

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jeffyscott
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Re: I-bonds to 529, tax exemption

Post by jeffyscott » Thu Nov 08, 2018 8:39 am

CharlesNorris wrote:
Wed Nov 07, 2018 10:24 pm
Well I'm going to give it the old college try here in a few days. I'll check back in once it is completed and income taxes are finished. I hope it goes smooth but the TD guy didn't ease my anxiety too much when he didn't know it was an option. Thanks for the reply and your experience.
the old college try - I see what you did there :D

The Federal tax benefit related to the I-bond "rollover" does not appear to depend on TD or the 529 plan doing anything and neither does our state income tax deduction. The only potential problem I can see there would be tax software not treating it properly and being forced to mail in paper.

Our contributions have not appeared in the 529 yet, once they do, I will hopefully be able to see if they carried over the cost basis or not.
press on, regardless - John C. Bogle

CharlesNorris
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Re: I-bonds to 529, tax exemption

Post by CharlesNorris » Thu Nov 08, 2018 8:51 pm

jeffyscott wrote:
Thu Nov 08, 2018 8:39 am
CharlesNorris wrote:
Wed Nov 07, 2018 10:24 pm
Well I'm going to give it the old college try here in a few days. I'll check back in once it is completed and income taxes are finished. I hope it goes smooth but the TD guy didn't ease my anxiety too much when he didn't know it was an option. Thanks for the reply and your experience.
the old college try - I see what you did there :D

The Federal tax benefit related to the I-bond "rollover" does not appear to depend on TD or the 529 plan doing anything and neither does our state income tax deduction. The only potential problem I can see there would be tax software not treating it properly and being forced to mail in paper.

Our contributions have not appeared in the 529 yet, once they do, I will hopefully be able to see if they carried over the cost basis or not.
Nice catch on what I did there :). We use tax software to do our own taxes as well and I agree it'll be interesting to see if it can solve this issue easily or if it'll be a challenge.

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jeffyscott
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Re: I-bonds to 529, tax exemption

Post by jeffyscott » Fri Nov 09, 2018 7:17 am

The 529 plan has received and invested my contribution and they do show the correct amount for earnings.

I think that I will have to keep other records for my state income tax deduction, because the confirmation shows it as "rollover/transfer" broken down between contributions and earnings. The earnings portion would not be deductible on state income taxes if it were from another 529, but there is nothing indicating that earning from I-bonds would not be deductible on state tax forms or instructions. The earnings are only about 10% of it, so it's not a big deal in any case.
press on, regardless - John C. Bogle

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