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us savings bond roll over to 529

Technical topics regarding tax preparation.
#1
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123
Joined:
10-Jan-2015 4:30pm
Location:
Virginia
Hello America !

I have a client who makes 140,000 a year and is single. She has US Savings Bonds. She would like to cash the bonds and contribute the principal and interest (tax free) to a 529 plan.

From what I can read it looks like there is a income limitation.

I am directed to form 8815 which has this income limitation of MAGI of 94,500 she is not eligible. My problem is this form is set up as if she is currently paying higher education costs. Which is not true. And based on this form even if she made less than the 94,500 all of the interest on the savings bond would be taxable because no current education expense is being paid.

So I am curious if anyone has any ideas? Is there an income limitation on cash out the US savings bond and rolling the otherwise taxable interest income into a 529 plan tax free?

Redskins vs. Bengals tonight So who has a prediction?

My best,

Art
 

#2
Posts:
123
Joined:
10-Jan-2015 4:30pm
Location:
Virginia
Mark Katrowitz wrote a super article on this and hit the ball out of the park.

https://www.savingforcollege.com/articl ... a-529-plan

How to Report a Savings Bond Rollover to the IRS
A savings bond rollover is reported on IRS Form 8815 to exclude the savings bond interest from income. (IRS Form 8818 can be used to record the redemption of U.S. savings bonds to comply with the IRS recordkeeping requirements.)

This form is confusing, since it refers only to qualified higher education expenses. It does not seem to consider the possibility of a rollover into a 529 plan or other college savings account.

To report a savings bond rollover, follow these steps:

List the name of the beneficiary of the college savings plan account on line 1, column (a). The beneficiary must be the taxpayer, the taxpayer’s spouse or a dependent of the taxpayer. The dependent must be claimed on the taxpayer’s federal income tax return.
Enter “QTP” on line 1, column (b), if the savings bond proceeds were contributed to a 529 college savings plan or prepaid tuition plan. Enter “Coverdell ESA” if the proceeds were contributed to a Coverdell education savings account. Also, list the name and address of the financial institution where the account is located.
List the amount of the contributions on line 2.
If you were only contributing the funds to a 529 college savings plan, prepaid tuition plan or Coverdell education savings account, there should be no offsetting tax-free education benefits. Write a zero on line 3.
Enter the amount of interest on line 1 of Schedule B, Interest and Ordinary Dividends, and the amount of the exclusion on line 3.
 


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