ISSUE #16
US Savings Bonds

Like many people, you may own a collection of United States Savings Bonds that you have accumulated over your lifetime. Although savings bonds are based on a simple idea, there are many rules that govern them. Here are some tips for managing your bonds:

Series EE Bonds -- Most savings bonds issued today are Series EE bonds. These bonds accrue interest, meaning that you collect your interest when you redeem the bond. Series EE bonds are purchased at half of their face value. For example, you pay $50 for a $100 savings bond. The bond grows in value as the interest accrues.

Interest Rate -- Currently, Series EE bonds earn interest at a rate of 90 percent of the average yield for 5-year Treasury bonds. Depending on the date of issue of your bond, it may be paying a guaranteed minimum interest rate, a fixed interest rate or a market-based rate. Each bond will continue to accrue interest according to the terms of its issue. When the value of your bond reaches its face value, the interest rate calculation may change.

Maturity -- Series EE bonds stop earning interest after 30 years. Some of the older Series E bonds issued before 1965 earn interest for 40 years. The point at which a savings bond stops earning interest is called the final maturity. If you continue to hold bonds after final maturity, you are making an interest-free loan to the federal government and earning nothing on your investment. Savings bonds may be redeemed at most banks and credit unions.

Older Savings Bonds -- Check any old bonds you own to see if they are still accruing interest. The Treasury Department offers a user-friendly savings bond calculator on the internet. You can use it to see what each of your savings bonds is worth today. Here is the internet address for this calculator: www.publicdebt.treas.gov/sav/savcalc.htm

Series I Bonds -- The federal government began issuing inflation-adjusted Series I bonds in 1998. Series I bonds accrue interest at a fixed base rate plus a semi-annual inflation adjustment. These bonds also accrue interest for a period of 30 years before reaching final maturity.

Taxation -- You will owe income tax on the accrued interest when you redeem a bond, or when it reaches final maturity. For example, if you paid $500 for a bond that you cash in for $1,200, you would owe income tax on $700. Make sure you cash in your bonds by the final maturity date. If you hold your bonds past final maturity, you still owe the tax once they reach final maturity.

Series HH Bonds -- Series E and EE bonds can be converted to Series HH bonds, which defers the tax for an additional 20 years. HH bonds are interest-paying bonds that distribute interest payments every six months. Once the HH bond reaches final maturity, all of the tax on the accrued interest from the original E or EE bonds will be due. The Treasury Department is not issuing any new HH bonds after August 31, 2004 .

Bond Ownership -- Savings bonds can be issued to a single owner or to two co-owners. Be careful with co-ownership, as either owner can cash in the bond. If one co-owner dies, the other co-owner becomes the sole owner. If you transfer your bond to a new owner, the tax on the accrued interest up to that point is due. You may also name a beneficiary to inherit your bond. Your beneficiary will be responsible for paying the tax when the bond is redeemed.

Keeping Track of Your Bonds -- The Treasury Department website provides a free “Savings Bond Wizard” software program that you can download to your home computer to manage your portfolio of bonds. Here is the website:
http://www.publicdebt.treas.gov/sav/savwizar.htm

Gifts for Charity -- You may use savings bonds to fund a charitable gift. They are best given as an estate gift in your Will. Current regulations prohibit naming a charity as a beneficiary or co-owner on U.S. savings bonds. When you leave savings bonds to a charity in your Will, the income tax on the accrued interest is avoided, so the full amount goes to the charity. Make sure you work with a lawyer, so that your bequest is drafted properly.

This publication has been prepared as an educational resource to help the reader identify areas of potential concern. The publisher is not engaged in rendering legal, accounting or other professional services. The information contained in this publication should not be acted upon without first obtaining the advice of a professional adviser. 2004 © Florida Philanthropic Advisors, LLC. Material may not be used without permission.

You may wish to access NEW information this month at: www.ashland.edu/estate and “click” on “Planned Giving” in the left hand column.

Our planned giving director, Paul Ditlevson, can be of tremendous service in helping you integrate your giving goals with your overall estate plan. He can also help you prepare to visit your attorney. You can reach Mr. Ditlevson by calling 419-289-5090 or by email to pditlevs@ashland.edu or regular mail at 401 College Avenue, Ashland, OH 44805.