One source of help is the Treasury website mentioned earlier, which provides bond earnings reports, calculations of current redemption value, an online savings bond redemption calculator and a program called Savings Bond Wizard. I bonds and EE bonds cashed before five years will result in a three-month interest penalty.įiguring the interest rates on particular bonds and determining the best time to redeem bonds can be challenging. (Interest is credited monthly for bonds purchased after May 1, 1997, and for certain other issues.) Cashing a bond just before interest is credited could cost the donor and charity up to six months’ interest. In many cases, bond interest is credited at six-month intervals. Donors also need to be sure that they redeem bonds at the proper time. They should retain bonds that are paying the highest rates of interest and cash the ones with low yields. The difficulty is that donors who give bond proceeds and use the standard deduction will report interest income but may be unable to use some or all of the charitable deduction.ĭonors who plan to cash and contribute savings bonds need planning assistance, especially if they intend to keep some bonds but give others. Donors would report interest income and receive contribution deductions that, theoretically, would reduce the donor’s taxes, or at least keep the gift from increasing the donor’s tax. The tax results of cashing and contributing bonds are less favorable than giving securities or cash in a checking account. But Treasury regulations rigidly restrict the lifetime reissue of bonds, limiting transfer to family members and personal estate trusts, such as revocable living trusts. Many donors would prefer to make gifts of bonds, whether they have stopped earning interest or not. Owners are often surprised to discover that some of their savings bonds have stopped earning interest, and may be interested in bringing new life to those bonds as planned gifts. īonds are often hidden assets for giving that people have simply forgotten about and likely would not miss if they gave them to The First Church of Christ, Scientist. All H bonds have ceased paying interest.Įxtensive consumer information about United States savings bonds is available at. Series H bonds were issued prior to 1980 and generally had 30-year maturities. Sale of Series HH bonds was discontinued in 2004. Series H and HH bonds are current income securities that pay interest semiannually by direct deposit for a maximum of 20 years. I bonds earn interest until they reach final maturity at 30 years from the issue date. Interest is credited monthly and compounded semiannually, but tax is generally deferred until redemption, in the same manner as Series EE bonds. Series I bonds are the newest variety and are purchased at face value (a $1,000 bond costs $1,000), earning interest at a rate that is indexed for inflation. Interest on college education savings bonds can be tax free if certain requirements are met. Series E bonds, the predecessor to EEs, were issued until 1980 and are widely held, although all stopped earning interest after June 2010. But owners have the option to report interest as it accrues annually. Taxation generally occurs only when the bonds are cashed, reissued to another person or reach final maturity. The bonds continue to earn interest until final maturity – 30 years from the date of issue. Interest is credited monthly and compounded semiannually. EE bonds are always free of state and local income taxes, and the interest accumulates free of federal income tax, as well, for cash-basis taxpayers who do not elect to report their bond interest annually as it accrues. If insufficient interest has accumulated, the Treasury will make up the difference, in effect guaranteeing a minimum interest rate for bonds held 20 years. Electronic EE bonds are bought at face value. Series EE savings bonds (paper version, no longer issued) were bought at a discount (a $100 bond cost $50 initially) and guaranteed to double in value upon reaching original maturity – 20 years after the issue date. Bonds traditionally have been purchased through financial institutions and employer-sponsored payroll savings plans and redeemed through financial institutions, but can also be purchased directly from the United States Treasury. Two general types of bonds are currently sold by the Savings Bond Division of the Department of Treasury: Series EE and Series I.
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