 Helpful Articles
from David Vollrath,
Union County Foundation Executive Director
The Foundation encourages you to work closely with your professional advisor(s)
as you develop your estate plan and consider your present and future charitable goals. |
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U.S. Savings Bonds... "The All-American Investment"
(Part of a series of articles on charitable giving and the Union County Foundation
by David Vollrath - Executive Director)
U.S. Savings bonds are the single most widely held security in the world. Over Fifty-Five million Americans own
these government backed U.S. Savings Bonds. Savings Bonds, initially called "Liberty Bonds", have been
around since WWI when they were first issued to help finance the war effort. During WWII, savings bonds were called
series E Bonds and they were replaced with the current day series EE Bonds. The very first series E Bond was sold
to President Franklin D. Roosevelt by Secretary of the Treasury Henry Morgenthau on May 1, 1941.
Even though Savings Bonds are a very common investment most people don’t have a good understanding of how they
work. Series EE Savings Bonds pay interest at a rate equal to 90% of the average 5 year Treasury securities yield
for the preceding 6 months. Interest earned on savings bonds is exempt from state and local income tax but is taxable
at the federal level. EE Bonds are sold in increments from $50 -$10,000. EE Bonds sell for half their face value
and mature at full face value in twenty years. The increase in value from the purchase price to the original maturity
price reflects the accumulated interest income.
Now that you understand a bit more about EE Savings Bonds let’s talk about what options a $10,000 U.S. Savings
Bond holder (let’s call him Jim) might have when the bond has reached its 20 year maturity. The options are: redeem
the bond, continue to hold the bond, or convert the bond. There also are some charitable giving options to consider.
If Jim wants to cash in his matured Savings Bond he need simply visit one of thousands of financial institutions
authorized to redeem EE savings bonds. Upon providing proper identification Jim would receive $10,000. As a result
of the redemption Jim would also have $5000 of taxable interest income. The $5000 of taxable income ($10000 face
- $5000 purchase price) represents the untaxed interest that accumulated over the last 20 years. The $5000 of taxable
income is not capital gain but interest income subject to ordinary federal income tax. If Jim were in the 25% tax
bracket he would owe federal income tax of $1250 ($5000 x .25%) thus netting $8,750 ($10,000- $1250) from the redemption
of his $10,000 savings bond.
In upcoming articles we will discuss other options in dealing with matured Savings Bonds including gifting them
to charity.
The Union County Foundation is equipped to help you achieve your charitable goals by providing as free service:
resource information, charitable gift annuities/life income plans, and assistance with planned giving and estate
planning. Please call us at 937-642-9618, email us at info@UnionCountyFoundation.org, or stop by our Marysville office at 126 N. Main St. We are committed to helping you…. "preserve
your footprint in time." |
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