New I Bonds Pay 1.40% Over Inflation. Put One in Your Kid's Name and the College Tax Break Is Gone for Good.

If you’re about to buy I bonds for a kid’s college fund, or send one as a holiday gift, the name on the bond decides whether the interest is ever tax-free. Put the child down as owner and the federal tax break is dead. Not delayed. Dead.

That matters more this month than it has in years.

The rate that makes this worth doing

Treasury posted the new I bond rate on October 30. Bonds bought from November 1 through April 30 pay 5.51% for the first six months, and 1.40% of that is a fixed rate the bond keeps for 30 years, on top of inflation. That’s the best fixed rate on any I bond sold since April 2007.

A bond held for 13 years builds up real interest. And the IRS lets you skip federal tax on that interest if you cash the bond in the same year you pay college tuition. It’s called the education savings bond program, and it covers series I bonds plus EE bonds issued after 1989. The trap is in the paperwork.

Here’s the catch

The bond’s owner has to be at least 24 years old before the bond is issued. TreasuryDirect spells out what that means: a bond “registered with a child as owner will not qualify even years later when the child is ready for college.”

Now look at how gifting works. To give an electronic bond, TreasuryDirect needs the recipient’s own account, and a child under 18 gets a linked account set up by a parent. The bond is then delivered into the kid’s account, in the kid’s name. Nice gesture. No education exclusion, for the child or the parent.

The fix costs nothing. Register the bond to yourself, or to you and your spouse. TreasuryDirect says the child “may be a beneficiary but cannot be the owner or co-owner.”

What it’s worth

Say you put $10,000 into a November I bond for a 5-year-old and cash it for freshman tuition 13 years later. If inflation averages 2.5% (our assumption, not a forecast), the bond grows to about $16,560. That’s roughly $6,560 of interest. At a 22% federal bracket, the full exclusion saves you about $1,440. I bond interest is already free of state income tax, so this is the federal piece.

Three rules decide whether you get it:

• Income, in the year you cash. For 2026, the break phases out between $152,650 and $182,650 of modified AGI on a joint return, and between $101,800 and $116,800 on other returns. The limits rise with inflation.
• Tuition and fees only. The IRS says room and board doesn’t count. Neither do expenses you already used for the American opportunity or lifetime learning credit.
• No married filing separately. Any other status works.

Do this

Before you buy, check the registration screen. Your name as owner, your child as beneficiary.

If housing is the big bill, use the 529 route. Contributions to a 529 count as a qualified expense for the bond program. So cash the bonds and move the money into your child’s 529 in the same year. IRS Publication 970 says room and board “is a qualified education expense for the QTP, but not for the education savings bond program.” The 529 can pay for the dorm.

If grandparents want to help, steer them to the 529 instead of a bond in the kid’s name.

Our education hub and financial aid guide cover the rest of the college money picture. For why November beats October on I bonds, see our fixed-rate breakdown.

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