Direct deposit:
Should you buy savings bonds?

Tax Tip of the Week
April 12, 2010

Everything old is new again.

Forty years ago, you could choose to have your federal tax refund sent to you in the form of U.S. savings bonds. That option, among others, is once again available on your 2009 return.

This time around, the bonds you can buy with your refund are U.S. Series I savings bonds. And, like other alternatives for saving your refund - such as depositing the money in your IRA, health savings account, or Coverdell education savings account - you'll want to consider your overall financial picture before making the decision to buy.

What they are.

"I bonds," as they're known, are savings bonds with an inflation component. When you buy I bonds, part of the interest you earn is based on a fixed rate, and part comes from an inflation adjustment.

The tax effect.

I bond interest is not taxable on your state or local income tax returns. Federal income tax does apply, as do both federal and state inheritance and gift taxes. Generally, you can choose to pay federal income tax on the interest annually or defer it until the bonds mature.

In addition, there's a break when you redeem the bonds and use the principal and interest to pay qualified educational expenses for yourself, your spouse, or a dependent. In that situation, you may be able to exclude the interest from your taxable income.

Give us a call to discuss these and other tax planning moves that will help you make the most of your refund.

Questions for our Financial Expert?
E-Mail us at: qa@ClevelandSeniors.Com