US Savings Bonds

Posts Tagged ‘savings bonds tax implications’

Question: Some question about the tax plan?

It’s my term project which has two questions.

First, for purposes of retirement savings and considering the tax implications, is it better to fund a retirement plan with stock and hold taxable bonds outside of a tax-sheltered retirement plan or vice-versa?

Second, if I find my wife and I erred in investing in Tranditional IRAs and would prefer to be in Roth IRAs. What suggestions can you offer?
Thank you for any answer.

Answer: Your first question cannot be answered because it depends on your investment goals, income level, and other factors. Are the stocks income producing that pay dividends or growth stocks on which you earn capital gains? Capital gains are taxed at a lower rate, and in the retirement plan they will be taxed at your regular rate when you withdraw them. But the plan may grow much faster than the bonds. Who is managing the taxable account? If you manage it yourself, can you perform as well as the retirement plan custodian? There are too many unanswered questions.

You can convert a traditional IRA to a Roth, but you have to pay the tax on the withdrawal. Whether this is in your best interest again depends on many factors. Check the IRS regulations and perhaps get advice form a qualified financial planner.

Question: Can I elect to pay tax on Series EE US Savings Bonds?

I have heard something about making an election to report accrued interest on EE Savings Bonds before they are redeemed. I just graduated and I expect the 2010 tax year to be the lowest tax bracket I’ll be in for the rest of my life. Therefore, if it’s possible to pay tax on the accrued interest without redeeming my Savings Bonds, I sure would like to do it. Is it possible to make this election and if so, how? Do I just attach a statement with my schedule B?
The bonds mature in 2018 and are paying 4%.
Why is it late? From the sound of what you posted, it seems like I can do it with no problem.. am I misreading?
They were a gift to me for my 2nd birthday. A few months ago, my dad found them in his safety deposit box and gave them to me. I did not even know I had bonds until then so I have not been “accounting” for them at all nor made any tax elections at all.

Answer: Yes you can. Go here, then look under the heading Interest Income…US Savings Bonds.

http://www.irs.gov/publications/p550/ch01.html#en_US_publink10009895

Also here…

http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eetaxconsider.htm

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