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The Basics About Bonds
Savings Bonds as Investments
By Megan L. Fowler
To find out how much your bonds are worth, visit the U.S. savings bond calculator (http://www.savingsbonds.gov/sav/savcalc.htm).
There are a few things you should be aware of in regards to taxes on your savings bonds, says Debbie Webb, an accountant in College Station/Bryan, Texas. "The interest income from these bonds can be tax-free if used for college tuition and fees," she says. "However, there are some pitfalls that could prevent this tax-free treatment."
According to Webb, these include the following:
- The tax-free treatment phases out for income levels between $86,400 and $116,400 for married couples and at $75,600 to $72,600 for singles. These are income levels at the time the bonds are used, not when they are bought.
- The bonds basically have to be issued in the name of one or both parents. So if grandparents buy them, the interest income cannot be tax-free.
- The parents have to be at least age 24 before the bonds are issued. So if 22-year-old parents buy them, the interest cannot be tax-free even if used for college expenses.
"Also know that savings-bond interest can be tax-free by registering the bond in the baby's name," says Stewart. "During the first year of the bond, you can declare that income taxes on the annual interest will be paid each year (instead of at the end of the life of the bond). If the child has no other income, then the interest earned on the bond is tax-free that year. But beware: Once you have declared how to pay the tax on the savings bond, you need to get permission from the IRS to change it."
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