Mature savings bonds rollover to 529

[anonymouse1]

I've already done our 2021 taxes (and gotten the refund!).  I have some paper EE bonds that matured the end of 2021 and aren't earning interest.  I just found out they can be rolled into a 529, not just cashed and used to pay tuition.  Our daughter is starting college in the fall.  The 2022 version of Form 8815 isn't available yet.  Can I redeem the bonds now, roll them into her 529 (I have a form from the plan administrator), and use the 2021 form?  Does this mean I need to amend our 2021 taxes?

[RobertB4444]

@anonymouse1  You definitely don't need to amend the 2021 return since you are cashing in the bonds in 2022.  

You will wait and file the 8815 with your 2022 return in order to exclude the interest from income because you're putting it in the 529 plan.

[anonymouse1]

Yeah, but 1.  I don't want to wait until the end of the year because the bonds aren't earning anything

2.  the 2022 form isn't available yet and

3.  I won't know until very close to the end of the year what our AGI is going to be, but I suspect it will be over the bottom number of the phaseout threshold.  We were under the phaseout threshold in 2021, but I had no idea the bonds could have been rolled over to a 529.

[PattiF · Accepted solution]

You cannot amend the 2021 return for a transaction that happens in 2022. The bonds can be cashed in now in 2022 and rolled into a 529 anytime in the year 2022. Form 8815 will show this exclusion of interest from your income. 

[anonymouse1]

Thanks, I was hoping I could do all that before the filing deadline (even though I already filed).  As long as you don't need to fill out the form at the time when you cash in the bonds, I guess whatever it is, it is.  Hubby got a bonus this year that pushes us into the phaseout range (which I never knew existed either).  But I might as well redeem the bonds now and put the money into the 529?  Or should I hang onto it until August when tuition is due?  Since I read that a 529 withdrawal is counted as the student's "income" on the next year's FAFSA?  Fall tuition minus scholarship minus $4000 to qualify for AOTC is just a little more than the current value of the bonds (principal and interest), so the bonds could go to tuition.

[PattiF]

If you redeem the bonds now and roll over to a 529 Plan, the money from the bonds will begin earning interest immediately. 

[Hal_Al]

When you say the bond "matured the end of 2021', does that mean Dec. 2021 or Jan 2022?  A bond that has reached maturity and stopped earning interest is automatically considered redeemed, and the interest amount is to reported to the Internal Revenue Service, that year.  If the bond matured in 2021,  I'm of the opinion that you do need to file an amended 2021 return to report the interest.  Furthermore, it is too late (past 60 days since the bond matured) to roll over the money to a 529 plan.

Q.  But I might as well redeem the bonds now and put the money into the 529?  Or should I hang onto it until August when tuition is due? 

A. It doesn't matter.  But, you must put the money into the 529 plan within 60 days of cashing the bonds and do so in the same calendar year. If the bond matured in 2022, I think the 60 days is counted from cashing, not maturity. 

Be advised that rolling the money over to a 529 plan is just another way of using the money for education.  The same income  phase out rules will apply. 

You said that "Fall tuition minus scholarship minus $4000 to qualify for AOTC is just a little more than the current value of the bonds (principal and interest), so the bonds could go to tuition". Once the money goes into a 529 plan, withdrawals from the plan can be used for room and board, and still be qualified.

. 

[anonymouse1]

They matured over the course of 2021 and I didn't realize it until I went to check what the values were (either the last week of December when I opened a Treasury Direct account to buy I bonds, or early in 2022 when I printed out the redemption form, I don't remember when, but I do remember wondering out loud why they were no longer earning interest and my son pointed out that they were more than 30 years old, because I just wasn't thinking 2021-1991 = 30).  So I meant to redeem them in February 2022 when I printed out the form, but it just got put aside and now that my daughter has decided on a college and we have to put down a housing deposit, I pulled the form and the bonds out again and started looking at all the options for "using savings bonds to pay for education".  So I will mail that in, and see what paperwork they send back, because the 529 plan administrator told me this morning that they will need some kind of statement showing how much was the principal on the bonds and how much was interest, when I write the check or do the electronic transfer from my checking account after I get the check (or direct deposit) from the Treasury Department (you can't redeem bonds and have the money directly deposited to a 529 plan, apparently).  So it won't be done by April 18, but since I already filed, if it ends up being a 1099-INT for 2021, I'd have to amend anyway.  If they send me a 1099-INT for the 2022 tax year, I'll file it with 2022 taxes.

[supergibbs]

Any update on what happened? I have a similar situation. Paper EE Bonds fully matured in November 2022 but were withdrawn in 2023. If I need to pay taxes on them for 2022, no need to worry about 529.

Is there a way to defer and file form 8815 in 2023?

[KrisD15]

To clarify, were you issued a 1099-INT? 

If yes, what year is the 1099-INT for? 

[supergibbs]

Haven't yet but from what I am reading, it should be issued automatically once fully matured. If that is true, it should be 2022.

[KrisD15 · Accepted solution]

I suggest you connect with the financial institution where you plan to cash in the bonds (and check your TreasuryDirect account) to see who is issuing the 1099-INT and what year it will be issued for. 

It seems that the interest should be claimed for Tax Year 2022 since according to the IRS 

you may report the interest yearly, or 

"Postpone reporting the interest until the earlier of 

the year you cash or dispose of the bonds 

or 

the year in which they mature."

which indicates you would report the interest for Tax Year 2022 if that was the year it matured. 

The interest would then be tax-free if it was deposited into a 529 account (or used to pay education expenses) 

Form 8815 refers to when the bonds are "Cashed In" which in your situation seems to be tax Year 2023.

Additionally, the INTENT of moving a matured Bond to a 529 Account is evident, although in your case the task will span over two calendar years.

Again, my advice is to find out who and when the 1099-INT for those bonds will be issued and use that as a guide. 

If 2022, claim the interest for Tax Year 2022 and don't bother with a 529 Account if one won't be of any service for you.

If 2023, roll the money into a 529 Account in 2023 if the tax advantage is worth it to you. 

[anonymouse1]

I got an email from TreasuryDirect since I mailed in my paper bonds.  In my Conversion Account under ManageDirect I have 6 transactions, one for each bond, listing the taxable amount for 2022 (the year I mailed the bonds in, not the year they matured).  When filling out my TurboTax questionnaire for 2022, I put the total amount and the taxable amount of the bonds down, and indicated that I contributed more than the total to a 529.  It doesn't seem to make any difference - since I also checked that I had already paid the taxes on the bond interest (via a 1040-X for 2021), it says none of the bond interest is excluded on Form 8815.  BUT since I already paid taxes on it, it's not included in my taxable income for 2022.  I'd have to open TT again and see exactly where it's subtracted, since I did list it with other interest income on Schedule B.  So if you had bonds mature in 2022 and didn't pay educational expenses (including 529 contributions) in 2022, I think you're best off just claiming it on your taxes now even if you didn't/won't get a 1099-INT for 2022, and just pay the taxes.  If you wait until next year and get a 1099-INT for 2023 and claim that you made a 529 contribution with the proceeds, it's possible you'd get it excluded on 8815, but it's also possible they'll come after you for penalties and interest for not claiming it in 2022 (the earlier date of when they matured vs when you cashed them).  Since I filed my amended return before the tax deadline in 2022, I didn't have any penalties or interest, just had to pay another $200 in taxes since they were already planning on sending us a refund.  It's much easier to just do it on the 1040 for the year the bond(s) matured.  That is, if you can afford to pay the taxes on the interest.