HH Bonds and H Bonds

Unlike paper EE Us savings bonds, HH US savings bonds are current income US savings bond securities. HH US savings bonds pay interest every 6 months until maturity or redemption whichever comes first. H US savings bonds are the predecessor to the HH US savings bonds. HH US savings bonds and are no longer issued by the U.S. Treasury.

Series HH Bonds and Series H Bonds Discontinued After August 31, 2004

The United States Treasury Department announced that Series HH US savings bonds will no longer be issued after August 31, 2004.

This means that after that date Series EE US savings bonds and Series E US savings bond holders will no longer be able to rollover accrued Series EE US savings bonds and Series E US savings bond interest into Series HH US savings bonds and continue to defer taxation.

Possible Alternatives to Series HH bonds and Series H bonds for Series EE US savings bonds and Series E US savings bonds holders

• As an alternative investment strategy, which has an increased level of risk that may not be suitable for everyone, suggest, if certain requirements are met, that you redeem the Series EE US savings bonds and Series E US savings bonds now and roll the proceeds into a Section 529 plan for your children.

The redemption will be tax free, and growth, if any, in the 529 account is tax free (not merely tax deferred), as long as the assets are used for qualified education expenses. There are certain risks involved when investing in a 529 plan, including the possible loss of principal.

• You might want to compare the value of the Series HH US savings bond tax deferral with the cost and benefit of selling Series EE US savings bonds and Series E US savings bonds and paying income taxes now on the tax deferred Series EE US savings bonds and Series E US savings bond interest.

In return, you can reinvest in investments that pay qualified dividends and can eventually be sold and be taxed at low long term capital gains tax rates. Also, other investments possibly receive a step-up in basis upon death, whereas Series HH savings bonds (being income in respect of a decedent) do not. You should also compare the investment risk of government bonds versus other investments.

• You might want to explore suitable tax deferred savings vehicles, such as annuities, if you own Series EE US savings bonds that will mature soon after August 31.

Annuities have a higher level of risk than US savings bonds and may not be a suitable substitute for you. There is a 10% penalty if the annuity owner receives a distribution of annuity income before 59 ½.