Grandparents and EE Bonds

[Gretel]

I'd like to have confirmation for my thoughts, please. It's just great to be able to do this.

Grandparents want to use EE Bonds for tuition for grand child and not pay taxes on the interest. They gift a $20,000 (incl. interest) bond to parents of child and register in parents name. Parents then turn around and cash bond and use for tuition and don't pay taxes for the interest.

Does this work?

[Gene V]

Gifted EE-Bonds

Gabriele,
I way I understand it, is when you gift Savings Bonds the bonds must be surrendered and reissued in the new owners name (Grandparents daughters name), and the grandparents must include in income all accumulated interest up to the date it was redeemed and reissued. Then if there is any interest left, the parents could probably use the bonds for tuition.

See J.K. Lasser 4.28

[Lion]

Bonds

I'm answering a different question, I'm sure. But, would the grandparents consider paying the tuition directly to the college? Then, no problem with gift amounts or no gift tax return required.

However, your question involved how to use grandparents' EE bonds for grandchild(ren)'s college. If interest income a problem at grandparents' tax rate, cash in some this month for fall tuition and wait until January 2006 to cash in more for spring tuition. Or, tell the grandchildren to take out loans, so grandparents can cash bonds over several years to help grandchildren repay college loans.

If grandparents are purchasing any more bonds and are in a low tax bracket now, elect to pay tax on accrued interest as they go instead of getting a spike in their income when they cash in the bonds.