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April
1999
- Article 1 One of the principal reasons for buying U.S. savings bonds is the fact that interest can build up without the need to currently report or pay tax on it. The accrued interest is added to the redemption value of the bond and is paid when the bond is eventually cashed in. Unfortunately, the law doesn't allow for this tax-free accumulation to continue indefinitely. For example, Series E bonds issued in January 1968 reach final maturity after 30 years. Thus, bonds issued in January 1968 reached final maturity in 1998. That means that not only will they stop earning interest, but all of the accrued and as yet untaxed interest is potentially taxable in 1998. A $1,000 E bond bought in January 1968 for $750 is now worth about $5,251 (and won't increase any more in value). The entire difference (i.e., $4,501) is potentially taxable in 1998. But there's a way to avoid having to pay tax now on all of the accumulated interest. This involves a special rule that permits further deferral if the E bond is exchanged for a Series HH bond. However, this exchange must be made within a prescribed time period. For example, it's already too late to exchange any Series E bonds issued in 1966. We have found that many of my clients own Series E bonds that were bought many years ago and which, except on occasional trips to the safe deposit vault, are rarely looked at or thought about. If you own bonds that are reaching final maturity this year, action is needed to assure that there's no loss of interest or unanticipated current tax consequences. Check the issue dates on your bonds and give us a call if you have any that are maturing. Please call us if you would like to discuss the details of your particular circumstances.
Veres
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