Form 8815 and Savings Bonds Rollover to 529 (QTP)

[ColoradoFamily]

Hello,

During 2019 we redeemed Series I US Savings Bonds (issued after 1989) and within 60 days, rolled over the entire proceeds to a Qualified Tuition Plan (QTP - 529 plan). 

How do I process this in TurboTax Premier so the interest remains untaxed due to the rollover?

Thanks,

Confused parent

[Hal_Al]

Enter the 1099-INT at the the interest income section. TurboTax (TT) will detect that it is savings bond interest and ask about education expenses.

At the screen "Tell us if any of these uncommon situations apply"", do NOT check the box "I need to adjust the taxable amount".  Click yes when asked if you used your bonds to pay for higher education expenses (the fine print tells your QTP counts). At the "Report educational expenses and benefits" screen, enter the amount of the QTP contribution as "Qualified higher educational expenses paid in 2019". At the "Additional Bond Information" screen, you enter the cashed bond info.

[ColoradoFamily]

Thanks for your prompt and helpful response.

[Cascadezoo]

We cashed savings bonds this year and also have a direct monthly payment to a QTP.  Can we count the monthly QTP contributions over the year if they weren't directly related to the savings bonds cashed in the summer?  Or at the lease, can we count the contributions after the bonds being cashed?

[Hal_Al]

Simple answer: No.  You have to inform the plan administrator that it is a "rollover" and give them the breakdown between principle and interest (earnings).   Rollovers must also occur within 60 days of redemption.

That said, contact the plan administrator and see if they can make an  adjustment for you, for the monthly contributions that meet the 60 day rule (probably not)

[Anonymous]

I need some further clarification as I have both paper series EE bonds and electronic Series I bonds.

When I look this up outside of TT, it seems that when rolling over to a 529 plan (which I did all within the same tax year), that It's relatively easy to report this and exclude - but when I get into this on TT, it's only allowing a partial tax deferment. Why?  I assume I am doing something incorrect - just not sure what. 

[Hal_Al]

@Anonymous 

There's an income limit for qualifying for the interest exclusion.  The income limit (MAGI - Modified Adjusted Gross Income) includes the amount of (potentially) taxable savings bond interest. If your income falls within the "phase out" range, you will only get a partial exclusion/deferment. 

The calculation of the excluded amount is shown on form 8815 (lines 9-13).

[Anonymous]

Where I am confused is the "Additional Bond Information" screen.

I understand the first line to be the sum total of all SeriesEE & I Bonds cashed, and the last line referring to previous years. It's the 2 questions in the middle that are in question to me.

All bonds were purchased at 1/2 face value SeriesEE or I. Is this what is meant by "a Discount" on the second question? Why is only the SeriesEE bonds questioned here? 

Thanks.

[jpr1]

I can't find anywhere in the IRS publications where it indicates you have to notify the QTP plan administrator that it's a rollover and provide the breakdown in interest and principle. Did that requirement recently get scrapped, or is it buried somewhere in Pub 550 or 970 or Form 8815 and I'm missing it?  I'm asking because my plan administrator is AWOL and the end of the tax year is quickly approaching...

[Hal_Al]

@jpr1 

The requirement was not scrapped.  It's still there.  It's essentially a rollover.  It's not so much that you need to notify the plan administrator, the requirement is that you need to keep track of the basis and earnings.  If you want the 1099-Q (distribution form) to be accurate (and not waive a red flag at the IRS), you need to notify the plan of those details. 

My 529 plan's contribution form has blanks to fill in with that info (breakdown between interest [earnings] and principal [basis]). 

If it were me, I'd send them the money (EFT), to meet the end of the year deadline, and sort out the details later.  But, you should check to see if the contribution form can be filled out at the plan's web site.

[jpr1]

Great info, thanks!

[jbkuang]

Hi there,

I cashed some EE series savings bond and received 1099INT from my bank. The fund was immediately (or within two days) transferred to a newly setup 529 education account. I'm doing my 2020 tax with TurboTax Premier (Yes, embarrassingly, I'm still working on it because Texans are allowed to file on or before June 15 this year due to both the Pandemic and February winter storm ). Even though the entry for Box 3 is not 0, I did not get the prompt to start form 8815. As a result, I am not able to successfully perform rollover for IRS tax purposes. Can someone give me a hint how to proceed? I might not be using the software correctly. I'm so stressed out. It's bothered me for two straight nights with no success.

Thanks a million.

JB Kuang

[Hal_Al]

At the 1099-INT screen, do not enter the amount in box 1.  Instead, check the box "my form has info in more than just box 1".  Then enter the amount in box 3. That should cause TT to give you the education interview. 

[jbkuang]

Thanks very very much  @Hal_Al  

QTP 529 rollover has no income limitation. However, the TT education interview did not seem to recognize that and determined that I'm not qualified for the exclusion. Could you give me some hint to overcome this seemingly technical glitch?

Thanks again!

JB Kuang

[Hal_Al]

A 529 to 529 rollover does not have an income limit.  Cashing Savings Bonds for education (including putting money in a 529) does have an income limit.  

So, even though cashing savings bonds and putting the  money in a 529 is a form of  "rollover",  it's not treated the same as a rollover from one 529 plan to another.  Instead, it is treated as cashing bonds and using the money for education.

TurboTax will apply the income limitations by completing form 8815.  See the income  limits and calculations on form 8815.  https://www.irs.gov/pub/irs-pdf/f8815.pdf .  In particular, note that the interest exclusion is "added back" when calculating  your modified adjusted gross income (MAGI).  See the instructions for line 9.