Q. Unlike directly using I bonds for qualified education expenses, rolling an I bond into a 529 plan would enable us to use the proceeds tax-free for room and board in addition to tuition. Is that correct?
A. Yes.
Q. Since the I bonds will be immediately rolled over into a 529 account, the proceeds will also be free from federal income taxes?
A. Yes.
Q. Would it be considered "double dipping" to roll the I bonds over into a 529 and still claim a state income tax deduction for the 529 contribution since I bonds are already free of state income tax?
A. General answer: No. Most states still allowed the state deduction. But, it may depend on which state.
Q. Is it permissible to retroactively deposit I bond funds into a 529 for the previous calendar year and still claim the federal tax exemption?
A. No. If you cash the bonds in 2024, the federal interest exclusion is reported on your 2024 return. If your state allows such a thing, that would be unusual. Reference: https://www.savingforcollege.com/article/how-to-rollover-us-savings-bonds-into-a-529-plan
which says, in part: "The expenses [including contributions to a 529 plan] must occur in the same year as the bond redemption"
Q. Moving forward, the 529 funds could be used to pay my student's qualified educational expenses beginning in fall 2024?
A. Yes.
Which state are you in. Even though a state has a limit ($8000 in your case), on the 529 contribution deduction they usually allow a carry forward of an excess. So, for example, you rollover $20,000; you deduct $8000 the first year, $8000 the 2nd year and $4000 the third year. EDIT Georgia does not have a carry forward provision for the 529 plan contribution deduction.
