Expert: Gina Boykin - 9/2/2008

Question
We have several series EE bonds that was just in the filing cabinet.  I intend to cash them now but the two children whose names are on the bonds  have already graduated from college.  WE overlooked cashing them in and use them for education purposes.
Can we cash them now and who should cash it, the owner (Me) or the beneficiary (children).  How can we get tax exclusion on the bonds?  We are in the 33% tax bracket and I hate to add more income if we cash the bonds.


Answer
At this point, I don't believe you can get an exclusion, because the qualified higher education expenses must be in the same year as the bonds are redeemed.  In addition, the owner would have to cash the bonds and recognize the gains as earnings.  Owners or co-owners are responsible for taxes, beneficiaries are not because it is not really in their names.  The purpose of naming a beneficiary is for transferring property upon death.  

The only thing I can suggest is to cash them in over time, so that you don't have the tax burden all in one year.