How to Move a Savings Bonds Into an Educational Savings Account

by D. Laverne O'Neal

Education is critical to pursuing the American Dream, but financing an education can be more than challenging. In the U.S. both federal and state governments provide tax-advantaged options to save for education. The Coverdell Education Savings Account, a federal plan, covers costs of schooling from Kindergarten through college, while the state-sponsored 529 Plan is intended only for post-secondary expenses. Both plans involve restrictions, and transgression can trigger penalties. To move a savings bond into an education savings plan requires redeeming it first.

1. Wait at least one year after buying your bonds. If possible, allow your savings bonds to reach maturity to maximize their value. If this is not possible, at least wait until interest has accrued for the period. For example, if interest posts to your savings bond in March and September of any given year, and you cash in the bonds in August, you will not be maximizing value even for a bond that has not matured.

2. Redeem the bonds at a financial institution.

3. Contribute the bond proceeds to an educational savings account. You can contribute no more than $2,000 per year to a Coverdell account and in most cases, only before the beneficiary turns 18. (You must also be sure your adjusted gross income for the year does not exceed IRS eligibility limits, which are regularly revised.) Contribute as much as your state allows to a 529 Plan regardless of the beneficiary's age. As of August 2011, no income-related eligibility restrictions apply to the 529 Plan.

4. File Form 8815 when you file your tax return if you put the bond proceeds in a 529 Plan and meet the requirements for the federal Education Savings Bond Program. The program has strict requirements as to income, filing status, who purchased the bonds and when, but may allow you to exclude savings bond interest from taxation. Consult a tax professional for advice on eligibility and tax filing requirements.


  • As of 2011, the adjusted gross income limit for Coverdell eligibility is $110,000 for single tax status filers and $220,000 for those who claim married filing jointly status.
  • Monies in a Coverdell ESA must be used or rolled over to another beneficiary or type of account by the time the original beneficiary turns 30.
  • The Coverdell ESA offers a wider range of investment choices than the 529 Plan.


  • Consult a tax or financial professional for details on how to minimize the tax bite of moving bond proceeds into an education savings account. Depending on your situation, it may be preferable to use the bond proceeds to pay for education expenses directly. One factor to keep in mind is that savings bond interest is always exempt from state and municipal income taxation.