If you or your parents purchase U.S. Savings Bonds for young children, be careful how you title them. Under some conditions, the interest on these bonds might be tax-free. However, to qualify for this tax break, a bond must be issued solely in the taxpayer’s name, or in the name of the taxpayer and spouse.
The owner must be at least age 24 before the bond’s issue date. Thus, a bond issued in the name of the taxpayer and his or her child as joint owners will not qualify; nor will a bond bought by a parent and issued in the name of his or her child under age 24.
If the child is named not as co-owner but as beneficiary, the bonds may still qualify for the tax break. Moreover, if an EE Savings Bond is co-owned by a parent and child, it may be possible to reissue the bond solely in the parent’s name.
The Code of Federal Regulations provides that a bond issued in co-ownership may be reissued in the name of either co-owner alone if both co-owners are related by blood (or legal adoption) or marriage to each other. “I bonds” (inflation-indexed Savings Bonds) do not afford the same flexibility.
Keep in mind that income must be under $91,850 on a joint return (in 2005) for a full exclusion of the interest income. A partial exclusion is available with income up to $121,850.
