I've bolded, italicized and underlined a very important point that chemocean stated above. You'll want to remember that information if you're redeeming I Bonds to put the proceeds in a 529 Plan and want to get the tax-free benefit.I have 2001 bonds that would push me over the exclusion in 2031.
Assuming our income and the exclusion MAGI increase at the same rate of increase, I calculate that I can redeem the bonds in three years (2029-2031) and still stay under the exclusion.
At the beginning of 2028, I will reevaluate this plan.
You situation is different in that you will have lower MAGI in 2025 and for some (limited?) years after 2025 but might be above the exclusion by 2033. Recall that you have to deposit the entire redemption amount each year, not just the interest, to get the full exclusion. Your plan seems reasonable unless there are other tax-saving actions (capital gains harvesting) that you could execute during your low MAGI years.
You could also increase your tax-deferred retirement withdrawals to reduce your AGI and use the redemption amounts over some years before 2033 to replace the increased retirement savings if you need the funds for living expenses. That action would be just deferring the taxable income to your retirement rather than eliminating the taxes on the interest income with the 529 deposits, assuming the 529 eventually gets used for qualified education expenses.
Statistics: Posted by Mel Lindauer — Sun Nov 03, 2024 12:48 am — Replies 2 — Views 214
