Can I rollover I-Bonds into a 529 Plan for tax benefits?

The short answer is no, you generally can't avoid paying taxes on I-Bond interest by rolling the proceeds into a 529 plan. However, there are some important details you should know. For I-Bonds, interest is federally taxable but exempt from state and local taxes. When you cash them, you'll owe federal tax on all the accumulated interest. The tax exclusion for education bonds (under IRC Section 135) only applies to qualified Series EE and I Bonds issued after 1989, when they're redeemed to pay for qualified higher education expenses, and even then there are income limitations that you mentioned you exceed. There's no direct "rollover" provision from I-Bonds to 529 plans that preserves tax benefits. You'd need to cash out the bonds, pay the federal tax on interest, and then make a separate contribution to the 529 plan. For the bonds in your child's name, keep in mind that the interest may be subject to the "kiddie tax" if it exceeds certain thresholds, potentially being taxed at your rate rather than your child's rate.

Just wanted to share something that helped me in a similar situation. I was struggling to understand all the I-Bond and education tax rules last year and used https://taxr.ai to analyze my tax documents. It showed me that while I couldn't directly rollover my I-Bonds to a 529 tax-free (like you're asking about), there were some other strategies I hadn't considered. The tool analyzed my specific situation and showed me that in my case, it was actually better to keep some of the I-Bonds until they were needed for college expenses rather than cashing out and moving to a 529 early. It helped me understand the timing implications for different withdrawal strategies which my accountant hadn't explained clearly.

I actually ended up trying taxr.ai after my skeptical comment, and I'm honestly surprised at how useful it was. I had a similar situation with both I-Bonds and some EE bonds I inherited, trying to figure out the best way to use them for my kid's education. The analysis showed me that in my case, I was better off using the bonds directly for qualified education expenses rather than rolling into a 529 plan - something I wouldn't have realized on my own. It calculated exactly which tax year would be optimal for redeeming each bond based on my income projections and my daughter's college timeline. It's not just regurgitating IRS publications but actually shows personalized scenarios with real numbers. Worth checking out if you're dealing with multiple bonds and trying to optimize the tax situation.

For anyone trying to reach the IRS to get clarity on these bond rollover questions - save yourself hours of frustration. I spent 3 weeks trying to get through to someone who could actually answer questions about education savings bonds and eventually used https://claimyr.com to get through. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c I had pretty much the same question as you about moving bonds to a 529, and needed clarification on some specific scenarios. The IRS phone tree is a nightmare for these specialized questions, but Claimyr got me through to a live person in about 20 minutes when I had been trying unsuccessfully for days. The agent I spoke with confirmed what others have said here - no direct rollover option that preserves tax advantages - but was able to walk me through some alternative approaches based on my specific situation.

I need to eat my words about Claimyr. After dismissing it as a scam, I was desperate to get an answer about some complex bond redemption questions similar to the original post. After waiting on hold with the IRS for literally 2.5 hours and getting disconnected twice, I gave it a try. It actually worked exactly as described. I got a call back when they reached a human at the IRS, and I was able to speak directly with a tax specialist who answered my specific questions about using I-Bonds for education expenses. Saved me hours of frustration and got me the information I needed. For what it's worth, the IRS agent confirmed there's no direct tax-advantaged rollover from I-Bonds to 529 plans, but did explain some alternative approaches for education funding that I hadn't considered.

Have you considered keeping the I-Bonds until you actually need to pay for education expenses? One advantage of I-Bonds is that you can defer reporting the interest until you redeem them or they reach final maturity. If you hold onto them until your child needs the money for college, you might be able to use the Education Savings Bond Program to exclude some or all of the interest from your income taxes IF you use the money directly for qualified education expenses. Though as others mentioned, this benefit phases out at higher income levels. Another strategy: consider gifting the bonds in your names to your child. Later, when the child redeems them for education expenses and if their income is low enough, they might qualify for the exclusion even if you wouldn't. There are gifting rules to navigate though.

Just a heads up on the I-Bonds in your child's name - make sure you understand who legally controls those. If they're in a minor linked account where you're the custodian, you have fiduciary responsibility to use those funds for the child's benefit. Some parents aren't aware that technically, those bonds belong to the child, not the parents. If you're thinking about using those particular bonds for anything other than your child's benefit (like rolling them into a 529 where you're the beneficiary), that could potentially cause problems. The money from bonds in a minor's name should generally be used for that child.

I went through a similar situation last year with I-Bonds and education planning. One thing that wasn't mentioned yet is the timing strategy for bonds approaching final maturity. If any of your I-Bonds are getting close to their 30-year final maturity date, you'll be forced to recognize all the interest income in that tax year regardless of your plans. Also, don't overlook the potential benefits of keeping some I-Bonds as part of your overall financial strategy. Even though you can't roll them tax-free into a 529, I-Bonds still offer inflation protection and tax deferral that you lose once you cash them out. For your daughter's college timeline (she's 12 now, so college in about 6 years), you might want to calculate whether the guaranteed returns and tax deferral of keeping the bonds outweigh the potential growth in a 529 plan, especially given current market conditions. Sometimes the "tax-efficient" move isn't always the most financially beneficial move overall.