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Do series EE bonds offer any special advantages if used for college savings?

Answer:

Yes. Series EE bonds (which may also be called Patriot bonds) are generally inexpensive, low-risk investments whose earnings are exempt from state and local taxes. In addition, in the college savings game, the interest earned by Series EE bonds (and Series I bonds) may be exempt from federal tax if the following requirements are met:

  • The bond must be issued in the name of one or both parents (not the child's name), and the owner of the bond must be at least 24 years old
  • The bond proceeds must be used to pay qualified higher education expenses (generally tuition and fees, not room and board)
  • The bond must be redeemed (cashed in) by the owner in the year it's used to pay the qualified education expenses of the owner, the owner's spouse, or their child
  • You must file a joint tax return if you're married
  • You must fall under established income limits (these limits are adjusted annually for inflation)

If you meet these requirements, you'll pay no federal tax on the interest earned by the bond when you cash it in. This saved amount can then be applied to the college bill.

However, despite this potential tax advantage, Series EE bonds have relatively low growth potential in an arena where it's crucial to keep up with annual college cost increases.

This information is provided for informational purposes only. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

Bond investments are subject to interest rate risk so that when interest rates rise, the prices of bonds can decrease and the investor can lose principal value.

Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.

Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Equitable nor any of the data provided by AXA Equitable or its content providers, such as Broadridge Investor Communication Solutions, Inc., shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Equitable website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.

AXA Equitable Life Insurance Company (New York, NY) issues life insurance and annuity products. Securities are offered through AXA Advisors, LLC, NY, NY 212-314-4600 (member FINRA / SIPC). AXA Equitable and AXA Advisors are affiliated companies, do not provide legal or tax advice and are not affiliated with Broadridge Investor Communication Solutions, Inc.

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GE 91357 (10/2016)