2011 Q3 | With Savings Bonds, Prepaying Tax May Be a Good Tactic

2011 Q3 | With Savings Bonds, Prepaying Tax May Be a Good Tactic

U.S. savings bonds can be good investments, especially if purchased for young children. They’re issued by the federal government, so bond holders don’t have to worry about a default. Yields are comparable to the yields on bank accounts. They’re fairly liquid: owners can cash in savings bonds one year after the purchase and can redeem these bonds with no loss of interest after five years. (If you redeem savings bonds within five years, you’ll lose the interest for the latest three months.) Taxes, too Owners of savings bonds also receive tax advantages. The interest is exempt from state and local income tax. Savings bonds are issued by the U.S. Treasury Department so they enjoy this tax treatment, along with all

2011 Q3 | Tax-Free Savings Bonds

2011 Q3 | Tax-Free Savings Bonds

The interest from savings bonds you cash in may be tax-free. That can be the case if you use the money for college tuition and fees. Several conditions apply. For example, you must have been at least age 24 when you bought th bonds. Either you or your spouse must own the savings bonds. The bond proceeds may be used for the owner’s education, the owner’s spouse’s education, or the education of a dependent for whom the owner claims an income tax exemption. Income limits exist for this tax benefit. For completely tax-free income, your modified adjusted gross income (MAGI) in 2011 must be no more than $106,650 on a joint tax return or $71,100 on other returns. The tax