Can Savings Bonds Be Transferred to a 529 Plan Tax-Free?

Transferring savings bonds to a 529 plan can be done tax-free, but only if you cash the bonds yourself and contribute the proceeds to the 529 in the same tax year, and only if the bonds and your situation meet the requirements of Internal Revenue Code Section 135. There is no direct bond-to-529 transfer. The money passes through your bank account, and the interest is excluded from your income when you file Form 8815 with your return.¹

Miss any one of the eligibility rules and the interest becomes ordinary taxable income. Most of the mistakes that cost families the exclusion happen before the 529 account is ever touched.

Which Bonds and Owners Qualify

Only Series EE and Series I bonds issued after December 31, 1989 are eligible. Older bonds and other series, including HH bonds, do not qualify regardless of what you do with the proceeds. Paper and electronic bonds both work.²

The bond has to be registered in your name, or in your name together with your spouse as co-owner. A bond in your child’s name does not qualify, even if you paid for it and the child is the future student. You also must have been at least 24 years old before the bond’s issue date. Parents who bought bonds for a newborn while in their early twenties cannot use those specific bonds for the exclusion.³

If you are married, you must file jointly for the year you redeem. Married filing separately disqualifies you entirely. There is no partial exclusion and no workaround.²

Income Limits That Can Still Disqualify You

Even with eligible bonds, your income in the redemption year can shrink or erase the exclusion. The phase-out uses your modified adjusted gross income (MAGI). For the 2026 tax year:

Single, head of household, or qualifying surviving spouse: the exclusion begins phasing out at $101,800 of MAGI and disappears at $116,800.
Married filing jointly: the exclusion begins phasing out at $152,650 and disappears at $182,650.

Inside the range, you lose the exclusion proportionally rather than all at once. Above the upper limit, every dollar of bond interest is taxable no matter how the money is used.⁴

What matters is your MAGI in the year you cash the bonds, not the year you bought them. If you expect a high-income year from a bonus, stock sale, or business event, redeeming in a lower-income year can protect the exclusion.

Timing: Same Tax Year

You may have read that you have 60 days to move bond proceeds into a 529. That 60-day rule governs 529-to-529 rollovers. It does not apply here. Under Section 135, the requirement is that you pay qualified higher education expenses, which includes contributing to a 529 plan, in the same tax year you redeem the bonds.⁵

Cashing bonds in December and depositing into a 529 in January kills the exclusion. If you are redeeming late in the year, make sure the 529 contribution posts before December 31.

Cashing the Bonds and Funding the 529

The mechanics come in two steps. First you cash the bonds. Electronic bonds are redeemed inside your TreasuryDirect account, with proceeds landing in the linked bank account. Paper bonds can be cashed at a bank where you hold an account, though not every branch handles them and some cap the amount per visit. Bonds over $1,000 require a certified signature on FS Form 1522.⁶

Watch the holding-period rules. A savings bond cannot be cashed within the first 12 months. Redeeming before the five-year mark forfeits the last three months of interest, so a bond held 18 months pays only 15 months of interest.⁷

Once the proceeds hit your bank, contribute them to the 529 plan through the plan’s normal channel. Label it a contribution, not a rollover. Keep the deposit confirmation. You will need it at tax time.

How Much of the Interest Is Actually Tax-Free

If you put every dollar of the bond proceeds, principal and interest, into the 529, all of the interest is excludable, assuming you clear the income test. When you cash more than you contribute, the exclusion is prorated.

The excludable interest equals total interest multiplied by qualified expenses divided by total proceeds. Say you cash $20,000 in bonds, of which $5,000 is interest, and contribute $15,000 to a 529. Your excludable interest is $5,000 × ($15,000 ÷ $20,000) = $3,750. The remaining $1,250 of interest is taxable.⁸

Qualified expenses also have to be reduced by any tax-free educational assistance the student receives, such as scholarships or Pell grants. The IRS calls the reduced number your adjusted qualified education expenses. If you are contributing bond proceeds to a 529, the contribution itself is the qualified expense for Section 135, so scholarships affect the calculation only when you use bond money to pay tuition directly.⁹

K-12 Tuition Is Not Covered

A 529 plan can pay up to $10,000 per year in K-12 tuition, but the bond interest exclusion does not stretch that far. Section 135 covers higher education only. If you cash bonds and put the money into a 529 you intend to use for elementary or secondary school tuition, the interest is taxable.²

Coordination With Education Credits

You cannot claim both the bond interest exclusion and an education credit like the American Opportunity Credit or Lifetime Learning Credit on the same expenses. Form 8815 requires you to subtract any expenses already used on Form 8863.¹

The American Opportunity Credit is worth up to $2,500 per student and often beats the exclusion dollar for dollar. When you route bond proceeds through a 529, the 529 contribution is the qualified expense for Section 135, which frees other out-of-pocket tuition to support the credit. If your tuition bill is small, you may have to pick one benefit or the other. Run the numbers both ways before filing.

Reporting on Form 8815

The exclusion is claimed on IRS Form 8815, filed with your federal return. The form walks through total bond proceeds, the interest portion, qualified expenses, your MAGI, and the excludable amount. You will use the 1099-INT from TreasuryDirect or the redeeming bank to complete it.¹

For each redeemed bond, keep the serial number, issue date, face value, and total redemption proceeds. If you cashed several bonds, each gets its own entry.⁵ Hold Form 8815, the 1099-INTs, bond records, and the 529 deposit confirmation for at least three years after filing. Six years is safer, because the IRS has that long to audit if income was underreported by more than 25 percent.¹⁰

1
Internal Revenue Service. Form 8815 – Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989
2
Office of the Law Revision Counsel. 26 USC 135 – Income from United States Savings Bonds Used to Pay Higher Education Tuition and Fees
3
Bureau of the Fiscal Service. FS Publication 0051 – Education Savings Bond Program
4
Internal Revenue Service. Bulletin No. 2025-45 – Revenue Procedure 2025-32
5
TreasuryDirect. Using Bonds for Higher Education
6
TreasuryDirect. Cashing EE or I Savings Bonds
7
TreasuryDirect. EE Bonds
8
Office of the Law Revision Counsel. 26 U.S. Code 135 – Income from United States Savings Bonds Used to Pay Higher Education Tuition and Fees
9
Internal Revenue Service. Publication 970 (2025) – Tax Benefits for Education
10
Internal Revenue Service. How Long Should I Keep Records