Consider electing to report the annual interest on EE bonds by simply claiming it on your childs tax return each year, instead of deferring it until maturity.
Specific Details
Joey Jr. has 10 $1,000 EE bonds generating $400 interest annually. Joey Jr. files a tax return each year, even though he may not be required to, reporting the $400 of EE bond interest as income and paying no tax because this is his only income. When Joey Jr. finally cashes the bonds many years later, he receives a 1099-int showing the total amount of interest for the life of the bond of $2,400. On that years tax return Joey Jr. shows the full amount of interest on his Schedule B of his tax return ($2400), but then subtracts the amount of interest previously reported on a separate line($2,000). This leaves only the interest income generated in the current year as reportable income when cashed.
Potential Savings
If your child would be in the 15% federal (state tax free) tax bracket when the bonds were cashed, and 0% each year leading up to that, your child could reduce their taxes up to $150 for every $1,000 of interest income generated by the EE bonds.