How to Use Series EE Bonds to Fund Your Grandkids' College?
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When it comes to helping the next generation with college costs, grandparents are increasingly stepping in. Rising tuition and the burden of student loans make outside financial support more important than ever. One often-overlooked tool in this effort is the Series EE savings bond — a safe, government-backed investment that can double in value over 20 years, and under the right conditions, provide tax-free income when used for education.
Unlike riskier investments, EE bonds don’t require grandparents to worry about market swings. They provide steady growth and a unique tax advantage when used for tuition and other qualified expenses. For families thinking ahead, this makes them an attractive piece of the education funding puzzle.
What Makes Series EE Bonds Special?
Series EE bonds are U.S. government savings bonds that guarantee at least a doubling in value after 20 years. They continue earning interest for up to 30 years, making them a long-term, low-risk option. Bonds can be purchased electronically through TreasuryDirect in amounts as low as $25, with a maximum of $10,000 per person, per year.
For grandparents, this makes them flexible gifts that can be built up gradually. They are also exempt from state and local taxes, and federal taxes can be deferred until redemption or maturity.
The Education Savings Bond Program Advantage
The real appeal for education planning lies in the Education Savings Bond Program. Under this program, interest earned on EE bonds (as well as Series I bonds) can be excluded from federal taxes if the proceeds are used for qualified higher education expenses.
To qualify, several rules apply:
The bond owner must have been at least 24 years old when the bond was purchased.
The redeemed funds must go toward tuition or required fees at an eligible institution. Expenses like textbooks, room or board do not qualify.
The bond must be issued after 1989.
Income limits apply; above certain modified adjusted gross income thresholds, the tax benefit phases out.
For grandparents, this means they can cash in bonds to help pay for a grandchild’s tuition and potentially avoid federal income tax on the bond’s interest.
How Grandparents Can Structure Gifting
Since EE bonds must be registered in the purchaser’s name or jointly with a spouse, grandparents typically buy and hold them, then redeem them when the grandchild starts college. The proceeds can then be applied directly toward tuition or even rolled into a Coverdell Education Savings Account.
Alternatively, bonds can be purchased as gifts in the grandchild’s name. However, if the child is under 24 at the time of purchase, the bonds will not qualify for the education tax exclusion. For this reason, many grandparents choose to keep the bonds in their own names until redemption.
Safe Growth vs. Rising Tuition
One limitation of EE bonds is their relatively modest return compared to stock-based investments. While they are guaranteed to double in 20 years, tuition has historically risen at a faster pace. This means grandparents may want to use EE bonds as a supplement rather than the sole funding source. The stability and tax benefits make them a great complement to other vehicles, such as 529 college savings plans.
Practical Steps for Grandparents
Open a TreasuryDirect account to purchase EE bonds.
Buy gradually. You can invest up to $10,000 per year, per person.
Track eligibility for the education tax exclusion, paying attention to income limits and qualified expenses.
Plan redemption carefully so the proceeds align with tuition bills.
Why EE Bonds Still Matter
For grandparents who want certainty and simplicity, Series EE bonds remain a reliable option. They provide guaranteed growth, federal tax perks when used for education, and a direct way to contribute to a grandchild’s future without taking on risk. While they may not cover every cost, they can help reduce the need for student loans and ensure that part of a child’s education is funded in the safest way possible.
The Bottom Line
As college costs climb, grandparents have an opportunity to make a real difference. By using Series EE bonds strategically, they can pass along not only money but also financial stability and peace of mind.