Series EE and Series I Savings Bonds are issued by the U.S. Treasury. These bonds have tax advantages—you do not pay state or local income tax on the interest earned, and federal income tax can be deferred until you redeem the bonds or they reach maturity.
Series EE U.S. Savings Bonds
EE U.S. Savings Bonds interest rates are fixed for 20 years at the time it is issued. The government may adjust the rate after the 20th year. Rates paid on series EE bonds are set twice a year, in May and November, and remain the same for all bonds issued during the following six-month period.
EE bonds come with a guarantee from the U.S. government to at least double in value over the term of the bond, which is commonly 20 years. At maturity, the owner of the bond can redeem the principal or opt to let it collect additional interest for another 10 years beyond the maturity date.
Interest income from EE bonds is exempt from state and local taxes but not from federal taxes. The owner may receive tax relief if the funds go to funding qualified higher education.
Series I U.S. Savings Bonds
Series I savings bonds are a relative newcomer, having been introduced in 1998. Unlike EE bonds, Series I bonds don't come with a guarantee to double in value over 20 years. Instead, Series I bonds are issued for a period of 30 years and have a rate of return that is fixed for the life of the bond plus an inflation-adjusted interest rate.
The adjustable-rate is revised semi-annually, in May and November, and is based on the Consumer Price Index for All Urban Consumers (CPI-U).
Differences
One potential bonus is that Series I bonds if used to pay the costs of higher education, may be exempt from federal taxes as well as state and local taxes—the bond must be redeemed and the proceeds used in the same calendar year to qualify.
The key difference between the two types of savings bonds is that adjustable rate. Series I bonds do not carry the same guarantee of doubling in value over 20 years, but they do have a built-in inflation adjustment.
What's the worst that could happen? The owner of a Series I bond could be hit with years of low inflation or even deflation, and fail to get the doubling in value over time.
Education Savings Bond Program
The Education Savings Bond Program permits qualified taxpayers to exclude from their grossincome all or a portion of the interest earned on the redemption of eligible Series EE andSeries I Bonds issued after 1989. You must be at least 24 years old before the bond's issuedate. To qualify for this exclusion, the taxpayer, the taxpayer's spouse, or the taxpayer'sdependent at certain post-secondary educational institutions must incur tuition and othereducational expenses
For redemptions in 2020:
- The interest is completely tax-free for joint filers with modified AGI less than $119,300 and $79,550 for all other taxpayers (sames as in 2019).
- The interest is only partially taxable for joint filers whose modified AGI is over the above threshold and less than $151,600and $96,100 for all other taxpayers (same as in 2019).
- The interest is completely taxable for joint filers whose modified AGI is $151,600 and above $96,100 for all other taxpayers (sames as in 2019).
This exclusion is not available to married individuals who file separate returns.
In order to get this federal tax break, the bonds generally must be purchased by a parent, the parent must be at least 24 years old, and the bonds can never be in the child's name. Form 8815 (Exclusion of Interest from Series EE and I U.S. Savings Bonds Issued after 1989) is used to figure out how much of the interest can be excluded from income.
FAQs
The interest earned on series EE and Series I bonds can be used tax-free for college if the following conditions are met: The funds are used for qualified educational expenses for parent or dependent child. These include tuition and fees for courses that count toward a degree or certificate program.
How do you claim the exclusion of interest from series EE or I US savings bonds issued after 1989? ›
If you cashed series EE or I U.S. savings bonds this year that were issued after 1989, you may be able to exclude from your income part or all of the interest on those bonds. Use Form 8815 to figure the amount of any interest you may exclude.
Can you use Series I bonds for education? ›
No federal tax protection unless used for education: You'll lose the federal tax exclusion of your Series I bonds if they're not used for educational purposes. You may save for years and then realize you won't use the bonds for educational expenses.
How do I avoid paying taxes on series EE bonds? ›
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent. Only certain qualified higher education costs are covered, including: Tuition.
How to cash EE bonds for education? ›
How do I cash my electronic bonds? Go to your TreasuryDirect account. Go to ManageDirect. Use the link for cashing securities.
What is the exclusion for educational savings bonds? ›
An education savings bond program lets qualified taxpayers exempt all or a portion of interest earned upon redemption of eligible savings bonds from their annual gross income.
How much tax will I pay on my EE savings bonds? ›
The interest on EE bonds isn't taxed as it accrues unless the owner elects to have it taxed annually. If an election is made, all previously accrued but untaxed interest is also reported in the election year. In most cases, this election isn't made so bond holders receive the benefits of tax deferral.
How do I report EE bonds on taxes? ›
Most people put off reporting the interest until they actually get it. You get a Form 1099-INT for the year in which you get the interest. (INT stands for "interest." The 1099-INT tells you how much interest the bond earned.)
How to roll over EE bonds into 529? ›
The savings bond cannot be directly rolled into the 529 plan, so you must redeem the bond and deposit the proceeds into the 529 account within 60 days of redemption. You must contribute the entire proceeds to the 529 plan, otherwise a portion of the interest would be taxable.
What is the loophole for Series I bonds? ›
Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds. So most investors think their annual investment tops out at $15,000 – one of the key I bond myths.
Series I Bond Drawbacks
However, there are some drawbacks to consider before investing in I Bonds. With their safety comes a comparatively lower return, comparable to a high-interest savings account or certificate of deposit (CD). One main limitation is that these bonds cannot be bought or sold on the secondary market.
What is the difference between EE series bonds and I series bonds? ›
These two investments are closely related
I bonds offer an inflation-protected return, ensuring your savings keep pace with rising costs. EE bonds, on the other hand, provide a fixed-interest rate for the life of the bond, offering a predictable return.
Should I cash out my Series EE bonds? ›
You'll keep earning interest for an extra decade. As long as you cash in your bond at the maturity date, you can guarantee your investment will double. So, if you buy a Series EE bond today for $25, and hold it for 20 years, you can cash it in for $50.
Do I need to report series I bonds on my taxes? ›
I cashed some Series E, Series EE, and Series I savings bonds. How do I report the interest? In general, you must report the interest in income in the taxable year in which you redeemed the bonds to the extent you did not include the interest in income in a prior taxable year.
What happens to EE bonds after 30 years? ›
If you moved your EE bond into a TreasuryDirect account, we pay you for the bond as soon as it reaches 30 years and stops earning interest. If you still have a paper EE bond, check the issue date. If that date is more than 30 years ago, it is no longer increasing in value and you may want to cash it.
How to report savings bond interest used for education? ›
If your total interest isn't more than $1500 for the year, and you're not otherwise required to report interest income on Schedule B, report the savings bond interest with your other interest on the "Interest" line of your tax return. For more information, see the Instructions for Schedule B (Form 1040).
Are EE bonds taxable when redeemed? ›
Key Takeaways. Interest from EE U.S. savings bonds is taxed at the federal level but not at the state or local levels for income. The interest that savings bonds earn is the amount that a bond can be redeemed for above its face value or original purchase price.
Do savings bonds need to be reported on fafsa? ›
Records of Your Assets
The FAFSA form will ask you and your contributors questions about your assets, so make sure you have records of your savings and checking account balances, as well as the value of any investments, such as stocks, bonds, and real estate (excluding your primary residence).
Can grandparents pay college with savings bonds? ›
The interest on Series EE and Series I savings bonds purchased in 1990 or a later year is tax-free if the bonds are used to pay for college or rolled over into a 529 plan (subject to income phaseouts). But the grandchild must be a dependent of the bond owner to qualify for the interest income exclusion.
