@Opus 17 said "If you use the interest to pay for qualified higher education costs for yourself, your spouse or your dependents, that interest is tax-free"
No, it doesn't work that way. You must spend the principal as well as the interest portion of the bond on education. It's best explained by example: You cashed a savings bond for $8000 of which $2000 was interest. That year you paid $4000 in tuition. $4000/$8000 = 50% of the bond proceeds were used for qualified educational expenses, so only 50% of the interest is tax free ($2000 x 50% =$1000). That calculation will be shown on form 8815 and the $1000 excluded on Schedule B.
That would be another reason to put the money in a 529. You would be allowed to exclude the full $2000 interest, in the current year, and still have the money in your 529 plan to spend (tax free) in a future year. This assumes you only withdraw $4000 (from the 529 plan), in the current year, to pay tuition.
