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If you cash a qualified E bond - all earnings will be taxable (assuming taxes were not paid on earnings in previous years)You may not defer tax liability by contributing funds into 529 plan.Contributions into 529 plans are not deductible on your tax return - you will be able to defer earning within that plan - but not contributions.Let me know if you need any help or clarification.
Section 135 (2) (c) pertaining to E bonds treats a 529(QTP) as a qualified educational expense and also allows such expenses for a spouse or dependents. The section does not permit the allowance(non-tax)for non dependants. No menton is made of beneficiaries of a 529 plan which can be grandchildren? My question is directed to that issue
Yes - you are correct - sorry for confusion - your contributions into qualified tuition program (section 529) are considerd qualified education expenses for qualified E bond interest exclusion.According to section 135(2)(c) - http://www.law.cornell.edu/uscode/usc_sec_26_00000135----000-.htmlSuch term shall include any contribution to a qualified tuition program (as defined in section 529) on behalf of a designated beneficiary (as defined in such section),...That means the definition of the dependent shoudl be also taken from section 529 - http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000529----000-.htmlThus - you may have your graqndchild as a the designated beneficiary without any limitations.See in this section..