We have i savings bonds in my husband's name, with our college student son as the beneficiary. We just realized that it is extremely likely that we are over the maximum income for savings bonds tax exclusion for a married couple with a joint return (latest maximum, 2017, $147,250). According to TreasuryDirect, the 2018 income maximum will not be known until the January, 2019 timeframe. We understand from other savingforcollege.com postings that in order to "rollover" the i bonds to a 529 plan, we have to redeem the bonds first, and pay the applicable tax, if our joint income is above the maximum allowed for exclusion, before adding the funds to the 529. The 529 is more attractive now that we realize that the 529 definition of qualified education expense is broader, includes books/room/board than the i bonds' definition. We have the following questions:
1) We won't be absolutely sure that we won't qualify for tax exclusion until January, but we want to "rollover" as soon as possible to minimize the taxable amount, should we not qualify. We talked to a representative of our 529 plan, and she recommends that if we are going to take action soon, that we go ahead and comply with the 60-day period and let the 529 plan know that the funds are coming from i savings bonds, and if we end up not qualifying, we can contact them again, and they will make the necessary changes. Does this approach make sense?
2) If we end up paying tax on the i bonds interest, is there any problem with transferring all the i bonds proceeds to the 529 plan? Will these proceeds be considered as rollover funds or as "new" contributions and therefore subject to the annual gift tax if the funds exceed the $28,000 gift maximum for a married couple?
Thanks in advance.