Interest on EE and I bonds used to pay for higher education may be tax-free,
provided certain rules are followed. The bonds must have been purchased after 1989 by people who were at least age 24 in the month before buying the bonds. The bonds must be redeemed to pay for undergraduate, graduate or vocational school tuition and fees for the taxpayer, spouse or dependent. Room and board costs aren’t eligible. Also, the bonds are required to be in the taxpayer’s name, not the name of the child. Grandparents can’t use this tax break to help pay for their grandchild’s college tuition unless the grandparent can, on his or her 1040, claim the grandkid as a dependent. The exclusion is subject to income limits. For 2020, it phases out for couples with modified adjusted gross income over $123,550…$82,350 for other filers. The tax break ends when modified AGI hits $153,550 and $97,350, respectively.