US Savings Bonds

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Can US Savings Bonds be cashed in tax-free for contribution to a qualified state tuition program (529 plan) or Education Savings Account?

Yes.

If the owner of the US savings bond meets the requirements, he/she may redeem and deposit the proceeds into a 529 plan or an Education Savings Accounts (ESA) tax-free, subject to the normal contribution rules for these programs.

Unless the IRS provides further guidance, the redemption and deposit transactions should occur within the same calendar year to avoid reporting difficulties.

The owner is required to file Form 8815 to exclude the US Savings Bond interest from taxation.

The current Us Savings Bond Interest rate that a US saving bond is earning and the length of time that this Us Savings Bond Interest rate will be provides a measurement for the US saving bond ’s future value. Understanding Us Savings Bond Interest helps US savings bond owners compare US Savings Bonds.

As with Treasury securities (treasury notes or treasury bonds), a high Us Savings Bond Interest rate (or coupon rate) gives one US savings bond a greater future value than another US saving bond with a lower Us Savings Bond Interest rate, providing both US Savings Bonds have equal redemption value at present. If a US savings bond owner wants to cash half of his or her US Savings Bonds, it is useful to be able to differentiate between the worst performing US Savings Bonds and the best performing US Savings Bonds in order to cash out the right US savings bond for the situation.

Cashing out US Savings Bonds using Us Savings Bond Interest – an example

‘Mr. US Savings Bonds owner’ owns 150 US Savings Bonds. The total value of Mr. US Savings Bonds owner’s portfolio is $100,000-$30,000 of which is deferred Us Savings Bond Interest. Mr. US Savings Bonds owner wants $50,000 from his US Savings Bonds, but don’t know which US Savings Bonds to cash.

Should Mr. US Savings Bonds owner cash the oldest US Savings Bonds?

Or, should Mr. US Savings Bonds owner cash the newest US Savings Bonds?

The correct way to find out which US Savings Bonds should be cashed out is to examine the interest rate of each US savings bond. In this case, Mr. US Savings Bonds owner should examine:

• the issue dates of the US Savings Bonds,
• Us Savings Bond Series, and
• face values of the US Savings Bonds.

After analyzing the above information of each US savings bond, Mr. US savings bond owner discovers that half of his US savings bonds are earning 4% while the other half of his US savings bonds are earning 6%. Thus, Mr. US savings bond owner should cash out the US savings bonds that are earning the lowest Us Savings Bond Interest first. In this case, Mr. US savings bond owner should cash out the US savings bonds earning 4% first, leaving the other US savings bonds to accumulate earnings at 6%.

By simply comparing US Savings Bonds Interest, Mr. US savings bonds owner has just realized an additional $1,000 a year in Us Savings Bond Interest.

Don’t redeem the US savings bonds by age

Age of US savings bonds should not be the sole determining factor when deciding which US savings bonds to cash. US savings bond yield plays a significant role in deciding which US savings bonds to redeem and needs to be considered.

The US Savings Bond interest rate of each type of US savings bond differs. US Savings Bonds do not all receive the same US Savings Bond interest rate. Current US Savings Bond interest rates range from 4% to 6.1 %, depending on Us Savings Bond Series and date of issue of the US savings bond.

Series H US Savings Bonds and Series HH US Savings Bonds:

Interest rates of Series H US Savings Bonds and Series HH US Savings Bonds vary from 4% to 6%, depending on the issue date of the US savings bond.

• Any Series H US savings bond over 30 years old is paying 0%.
• Any Series HH US savings bond over 20 years old is paying 0%. (The first HH US Savings Bonds were issued in 1980 and stopped earning interest in the year 2000.)

US Savings Notes / Freedom Shares:

Those US Savings Notes or Freedom Shares that still earn interest receive between 4% and 5%. All US savings notes over 30 years old receive 0%. All savings notes stopped earning interest by October 2000.

Series E US Savings Bonds and Series EE US Savings Bonds over five years old:

Interest rates of Series E US Savings Bonds and Series EE US Savings Bonds range from 4% to 6.1 %, depending on the issue date of the US Savings Bonds. No US saving bond earns over 6.1 %. Any Series E US savings bond issued November 1965 or before and those US Savings Bonds that are over 40 years old is earning 0%. Any Series E US savings bond issued December 1965 and after, and US Savings Bonds that are over 30 years old, is earning 0%.

Series EE US Savings Bonds less than five years old:

Generally, Series EE US Savings Bonds less than five years old have interest rates ranging from 4% to 5.5%. However, Series EE US Savings Bonds issued from March 1993 to April 1995 have a retroactive “catch-up” which is added to the value of the Series EE US savings bond on the five-year anniversary. Thus, these Series EE US Savings Bonds can yield over 10% in that fifth year. Series EE US Savings Bonds issued from March 1993 to April 1995 and that are not yet five years old will be the best performers in the Series EE Us Savings Bond Program over the next one to two years. After Series EE US Savings Bonds turn five years old, they will yield between 4% and 5.5%, if interest rates of these Series EE US Savings Bonds remain relatively flat.

Series I US savings bonds:

The first Series I US savings bond was issued September 1, 1998. The initial interest rate for Series I US savings bonds issued in September and October 1998 was 4.66%. This is a combination of a fixed Series I US Savings Bonds Interest rate of 3.4% and a CPI-U (Consumer Price Index-Urban Consumers) based rate of 1.26% (when annualized). The rates on outstanding Series I US savings bonds will fluctuate every six months dependent on changes in the CPI-U. The rates on new-purchase Series I US savings bonds are reset every six months, in May and November.