EE savings bonds

Series EE Savings Bonds (often called EE Bonds) are government savings bonds issued by the US Treasury. First issued in 1980 as a replacement for the series E Savings Bonds, they have been offered ever since, though the rules applying to the bonds have changed several times. EE Bonds issued after May 2005 earn a fixed rate of interest based on the issue date of the bond. Other forms of treasury securities include I Savings Bonds and TIPS.

History
The rules governing EE Savings Bonds are complex, and have been changed several times since they were first issued.

Bonds issued before May 1995
Before May 1995, all EE Bonds issued earned a graduated, fixed rate of interest for the first five years. After five years and until the maturity date, the bonds earned either the guaranteed minimum rate (determined by the date of issue) or a market-based rate, whichever was higher.

Taxes
EE Savings Bonds are not subject to state or local taxes, and all federal taxes can be deferred until redemption or the end of the extended maturity period.

Tax-Free Growth for Qualified Education Expenses
If EE Bonds issued after 1989 are redeemed for qualifying education expenses, the interest is completely tax free, provided certain conditions are met. According to Publication 970 (2007), Tax Benefits for Education, the tax-free redemption requires the following conditions to be met:


 * You pay qualified educational expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return.
 * Your modified adjusted gross income (MAGI) is less than $80,600 ($128,400 if married filing jointly or qualifying widow(er)). (This MAGI number is adjusted annually.)
 * Your filing status is not married filing separately.
 * The owner of the Savings Bonds must be at least 24 years old before the bond's issue date. (The issue date is printed on the front of the Savings Bond.)
 * The full proceeds of the savings bond redemption (both interest and principal) must be used for qualifying educational expenses.

Note that redeeming EE Bonds to contribute to a 529 plan or a Coverdell education savings account is also considered a qualified educational expense. See Publication 970 (2007), Tax Benefits for Education for more details.