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The savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution.
For married taxpayers filing jointly, the (2012) tax exclusion begins to be reduced with a $109,250 modified adjusted gross income and is eliminated for adjusted gross incomes of $139,250 and above.

So as long as we have an AGI below the reduction point...pretty much a given when we exercise the I bond redemption for college, and qualified education expenses, which we will have in spades, the income from the I-bonds will be excluded from our gross income for tax purposes. How would we report this to the IRS?

I am looking towards retirement and potentially being subject to needing Obamacare, if our company eliminates the retiree health care. Some income, such as tax exempt interest declared on line 8B of the 1040 has to be added back in to the AGI to determine if your MAGI makes you eligible for subsidy: Just trying to understand all the components so that I can make educated decisions regarding how to pay for the kids's school costs in retirement and still keep income under wraps.

It's always interesting when the rules change.

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