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Presently, many grandchildren find themselves inheriting savings bonds left for them by deceased grandparents. Although savings bonds can be problematic when it comes to inheritance, inheriting savings bonds for education can be helpful. In fact, with a correct registration, the savings bonds may qualify for the education tax exclusion. According to TreasuryDirect the following must apply, in part, to qualify for the education tax exclusion:
When using bonds for your child’s education, the bonds must be registered in your name and/or your spouse’s name. Your child can be listed as a beneficiary on the bond, but not as a co-owner.
Ultimately, the registration for the savings bonds must be in a parent’s name to qualify for the education tax exclusion. Unfortunately, many grandparents mistakenly register the savings bonds in their own name while designating the grandchild as the beneficiary. Consequently, complications arise when applying for the education tax exclusion after redeeming the savings bonds.