Ask Jean: The Tax Consequences of Savings Bonds
I bought EE savings bonds to assist with the education of my children.
Fortunately, or unfortunately, we earn too much money to qualify for the tax
savings if these were used for their educational costs. I am wondering if
there is a way to transfer ownership of these bonds to the children so that
when the bonds are redeemed, the proceeds and the tax burden are theirs.
Most of these bonds have matured but are still earning interest at a rate of
4% and are safe. Thank you.
— Anita Mann
Hi Anita. Unfortunately, there’s no way to get out of this tax burden
completely. Your best bet is to have the EE savings bonds reissued to your
children, identifying them as the co-owners of the bonds. However, if you
do that, you’ll still have to pay taxes on the interest that was earned up
until the date of the reissue. That tax bill can’t be transferred, along
with the bonds, to your children.
Because the bonds are still earning interest, the sooner you do this, the
lower your tax burden will be. Here’s the form that the Treasury Department
says you need to file to kick off this process. You’ll then be sent an
IRS Form 1099-INT, which will show the interest these bonds earned up until
the date of the reissue. You’ll need to report that amount as income on your
next tax return.
After that point, the new owners will be responsible for interest and any
taxes it results in.
