Under certain circumstances, U.S. Savings Bonds owned by someone who was at least 24 years old on the bond’s issue date may be redeemed tax-free to pay for qualified higher education expenses of the taxpayer, the taxpayer’s spouse, or a dependent. "Qualified higher education expenses," for this purpose, include contributions to a qualified tuition program.
Therefore, you can convert a qualifying U.S. Savings Bond to a 529 savings account for yourself, your spouse, or your dependent without paying income tax. However, a conversion of a U.S. Savings Bond to a 529 savings account for a grandchild would not qualify for exclusion from income unless the grandchild was a dependent for whom the grandparent claims an exemption.
To effect the conversion, you’d cash in the qualified U.S. Savings Bonds and, in the same year, fund the 529 savings account with the proceeds. Attach Form 8815 to your federal income tax return to calculate the tax exclusion for the interest on the Savings Bonds.
