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Series I Savings Bonds: What Readers Want to Know

Popular US government-backed investments have recently become even more attractive, especially to wise tax investors who are worried about inflation.

On the tax benefits and other aspects of Series I savings bonds Column earlier this year.. The column collected many follow-up questions from The Wall Street Journal readers. The popularity of these investments could continue a few weeks ago as the U.S. Treasury announced an initial annual rate of 9.62% for new Series I savings bonds sold from May to October of this year. there is.

To be sure, there is no perfect investment for everyone. However, Series I bonds represent so many attractive features that they represent an “absolutely great” investment opportunity, and Burton, author of the classic “Random Walkdown Wall Street” investment. Malkiel says.

Here are some of these readers’ questions and answers to other questions that investors may have regarding fixed income.

If I bought these Series I Savings Bonds, what is the minimum time required to hold them?

At least one year. These bonds aren’t for you, at least if you can’t afford to lock in your money for that long time. However, keep in mind that if possible, you can continue to earn interest for 30 years or until you monetize, whichever comes first. If you redeem 5 years ago, you will lose interest for the last 3 months. “For example, if you monetize an I bond after 18 months, you will earn interest for the first 15 months,” said the Treasury website.

If I buy now, will I be guaranteed an interest rate of 9.62% as long as I have a bond?

no. That 9.62% interest rate is only the first annual rate of new I bonds sold from May to October of this year. The rate “applies 6 months after purchase,” the Treasury site said. “For example, if you purchased an I bond on July 1, 2022, 9.62% will apply until January 1, 2023. Interest will be compounded semi-annually.”

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What questions or advice do you have about Series I bonds? Join the conversation below.

The Treasury resets rates every six months based on inflation-related formulas. No one knows exactly what will happen at the forefront of inflation, so it’s unclear if the new initial interest rate will start in November today.

“Rate updates affect both new and previously issued bonds,” said a Treasury spokesman. “The compound interest rate applicable to Series I savings bonds is renewed every six months from the time the bond is issued until it matures.” For more information on how bonds earn interest, see Treasury website..

Is there a limit to the amount of these bonds that can be purchased each year?

Yes. According to the Treasury, the annual limit is $ 10,000 per person.You can buy bonds in electronic form from Treasurydirect.govAnd you are also yours Federal income tax refund.. Many investors also buy Series I bonds as gifts not only for themselves, but also for relatives and friends.

When purchasing as a gift, the purchase price “is counted in the recipient’s annual limit, not the donor,” the Treasury said. When asked if the cap should be raised, a Treasury spokesman said, “There are no proposals under consideration to raise the cap.”

I bought a $ 10,000 Series I bond at the end of last year. Do I have to wait 12 months from the date of purchase to purchase more? Or can I buy more at any time this year?

You don’t have to wait 12 months. Additional purchases will be available at any time during 2022, according to a Treasury spokesman. “The annual purchase limit applies on a calendar year basis and will be reset on January 1st.”

Interest rates are generally rising significantly. Can the value of these bonds be below my purchase price?

no. The Treasury says the value of your I bond can never be lower than the amount you paid. “Interest rates cannot go below zero and the redemption value of I bonds cannot go down.”

What are the most important tax benefits of savings bonds?

Interest income on savings bonds is exempt from income tax in all states and regions. This can be an important attraction for many high-income investors in high-tax areas such as California and New York City. (But some states, including Florida, Texas, Washington, and Nevada, do not have state income taxes.) The Tax Foundation State tax details..

Question

  • Do you have any questions about taxes

Some or all of your interest may also be exempt from federal income tax, but only under certain circumstances. “spend money For higher education According to the Treasury, it may prevent you from paying federal income tax on your interest. However, there are important restrictions such as the amount of income and other small prints. Income thresholds usually change annually. See for more information. IRS Form 8815..

Another attractive feature that can surprise some taxpayers: Bondholders have the flexibility to decide when to report interest income. Most taxpayers choose to defer interest reporting until they file a federal income tax return for the year in which they received the “value of the bond, including interest.” But there is another option. Report interest every year. This can be a wise move for those who have little or no taxable income.

See Treasury Direct’s answer for more information. FAQ..

Separately, one reader asked about qualified charitable distribution, QCD. This is a smart tax method that many older investors use to donate to charities from traditional personal annuity accounts. Specifically, the reader wants to know if a taxpayer who has a qualified charitable distribution and is eligible to exclude the entire amount from his income can deduct the transfer as a charitable donation from his federal income tax return. I did.

Answer: No. “We cannot claim a charitable donation deduction for QCD that is not included in our income,” the IRS said in Publication 590-B.

Still, this approach is still valuable to many older taxpayers for several reasons. QCD allows investors over the age of 70½ to transfer $ 100,000 directly from the IRA to a qualified charity each year without making a taxable transfer. If done correctly and over 72 years old, this transfer counts as the minimum distribution required for the year. It is also not included in the adjusted total income. This is an important number that can affect many other items in your tax return.

WARNING: Donor Advisored Funds are not considered eligible charities for this purpose.

Harman is a California writer. He was previously a columnist for The Wall Street Journal’s tax reports.Comments and tax questions taxquestions@wsj.com..

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Series I Savings Bonds: What Readers Want to Know

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