Recently learned that my wife and I both have a number of 1980's era and 1990's era EE bonds that were purchased in our names by grandparents. The majority of them are have been mature for several years already at this point.
Our income puts us in a 24% marginal tax bracket so I have not taken action on cashing them in to pay the taxes. Our oldest of 3 will be in college in about 2.5 years.
I was reading up on several strategies to use these bonds to help pay for college, including rollovers to 529 plans and directly using them for qualifying expenses. However, if what I read is true, we are above the income level for a tax exclusion.
My wife remembers having a part time job and having to pay taxes on some bonds that were redeemed to help pay for her college way back when. However, I looked up the standard deduction and it was only $4300... she definitely had to pay tax on w2 income and redeemed bonds that year. Now, it looks like the standard deduction for oldest is about $15,000. Gift exclusion is $19,000 and the bonds are worth less than that.
Is gifting them the best option?
What to do with EE bonds...
Re: What to do with EE bonds...
Technically the interest is reportable in the year of final maturity whether you actually redeemed the bond or not, so there is no advantage in continuing to hold a fully mature bond. In practice, the tax system isn't equipped to handle this. There is nothing in place to generate a 1099-INT for an unredeemed, matured paper bond nor does the Fiscal Service even have any contact information for the owner.
Re: What to do with EE bonds...
Here's an article titled How to cash savings bonds. Hope this helps you out.