Custodial Accounts (UTMA/UGMA)
Assets in a custodial account belong to the minor. A
custodian, usually an adult relative, controls the assets
until the minor reaches the age set by state law (21 in
most states).
Assets in a custodial account can be used to pay for education expenses for the minor.
Savings Bond Interest Exclusion
Exclusion Rules
Interest from qualified savings bonds redeemed by the
taxpayer can be excluded from income if:
• The taxpayer paid qualified education expenses during the year for the taxpayer, spouse, or a dependent
claimed on the taxpayer’s return.
• Filing status is not Married Filing Separate.
If proceeds from the redemption (interest and principal) are more than adjusted qualified education expenses, only a percentage of the interest is excludable.
Example: Marty redeemed qualified bonds for $10,000, including accrued interest of $5,500. He paid $8,000 of qualified
education expenses during the year. His excludable interest is:
Income Limit
The exclusion is limited by adjusted gross income.
Check with your tax preparer for income limitations.
Qualified Savings Bonds
• Series EE bonds issued after 1989 and Series I bonds.
• Issued to a person who was age 24 before the bond’s
issue date. The issue date is the first day of the month in which the bond was purchased (for example, a bond purchased on May 25 has a May 1 issue date). The issue date is printed on the front of the bond.
• Issued in the name of the taxpayer and/or spouse. There can be no other co-owners, including the taxpayer’s child. The bond can have a pay-on-death
(POD) beneficiary, including a child.
Qualified Education Expenses
• Tuition and fees required for enrollment or attendance at an eligible educational institution. Qualified expenses do not include courses involving sports, games, or hobbies, unless part of the student’s degree program.
• Contributions to a qualified tuition program.
• Contributions to a Coverdell education savings account.
Qualified Tuition Plans (529 Plans) & Educational Savings Accounts (ESAs)
QTP and ESA Tax Benefits
Contributions to a QTP or ESA are not deductible. Earnings accumulate tax free. Distributions are not taxable if less than the beneficiary’s adjusted qualified education expenses in the year of distribution. Contributors can contribute to both a QTP and an ESA in the same year for the same designated beneficiary.
Qualified Expenses
• Tuition, fees, books, supplies, and equipment required for enrollment or attendance of the designated
beneficiary at an eligible institution.
• Expenses for special needs services of a beneficiary
with special needs incurred in connection with enrollment or attendance.
• Room and board for students enrolled at least half
time in a degree or certificate program. Expenses are
limited to the room and board allowance included in
the cost of attendance set by the school for financial
aid purposes or the actual cost of campus housing, if
greater.
Did You Know? Most colleges and universities
set room and board allowances for students who live
on campus, off campus, and with parents. Check the
school’s financial aid website for costs of attendance.
For ESAs, the following additional expenses are allowed.
• Expenses for enrollment or attendance at any public,
private, or religious school that provides K– 12 education as determined under state law.
– Tuition, fees, books, supplies and equipment, academic tutoring, special needs services.
– Room and board, uniforms, transportation, supplementary items and services, including extended day
programs if required or provided by the school.
• Purchase of computer technology, equipment, or internet access and related services to be used by the
beneficiary and family during elementary or secondary school years. Does not include computer software
unless predominantly educational.
• Contributions to QTPs for the designated beneficiary.
Adjustments
Qualified expenses are reduced by:
• Tax-free assistance (scholarships, fellowships, grants,
employer-provided assistance, veterans benefits,
and any other nontaxable payments except gifts or
inheritances).
• Amounts used to figure an education credit.
