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I have a $6000+ tuition bill due. For 2013 my total tuition paid will be about $9500. This is for graduate school and I believe is considered less than half time (4 credits in spring and now 8 credits in Fall).

For the past half dozen semesters I've owed about $3000 per semester. What I have been doing is to use 0% credit card checks... Every few weeks I'll get a set in the mail offering 12-15 months at 0% with only a 1% transaction fee. My "system" has been to use those to spread the $3000 over a period of 5-7 months of even payments. I carry no balances and I stop using the card with the balance to prevent any hiccups. So far it's been a success. I could use the same system for this semester...

Another option I am considering is cashing an I-Bond. I have an I-Bond from 2001 with a $5000 face value and about $4500 in earned interest. It's earning about 4-5% now. It has a fixed rate + inflation, so it has earned as high as 8-9% in the past and it will not drop below 3%. I believe--and this is sort of where the tax question is--that if I use all the proceeds of the bond for my tuition (which I think just translates into cashing the bond during the same tax year as the tuition payments) then I will not owe income tax on the interest.

If I were to cash the bond today I would owe about $1100 at my 25% federal rate. At the present earning rate, that's about 3, maybe 4, years of earnings, meaning if I planned to hold the bond at least that long I would break even vs. the tax savings today.

If I sold the bond, my plan would be to repay myself the total proceeds of the bond (about $9500) over 12-15 months time by contributing to an existing brokerage Roth IRA which I have not been contributing to lately, and do not plan to contribute to during 2013 or 2014 (I also have no other Roth IRAs, so contribution over 2013/2014 should be possible w/o taking place of other retirement savings). I would likely be buying some mix of S&P index and MF:SA stocks with the IRA.

These bonds have represented my "catastrophic e-fund". I am comfortable with losing access to that value for 12-15 months while I re-pay it. I believe that if it's in the Roth IRA I should still be able to access it because I can withdraw contributions at any point w/o penalty or tax event (is that right?)

The downside to converting the value of the I-Bond into stocks/MFs held in a Roth IRA is that my principal value is no longer guaranteed while invested somewhere that I expect to provide a comparable return (3-9%) ... tho I do feel reasonably confident that spread around a bit I should be able to do reasonably well without too much risk.

Have I made any wrong assumptions regarding taxes? I know this is a tax-specific board, but overall does this I-Bond idea seem reasonable, or does it seem like a mistake?
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