 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. |
U.S. Savings Bonds... "The All-American Investment", Part 2
(Part of a series of articles on charitable giving and the Union County Foundation
by David Vollrath - Executive Director)
Your savings bond has matured, now what do you do? In our last column we talked in detail about what savings bonds
are, how they work, and how to cash them in at their 20-year maturity. This week we will explore two more possibilities
in dealing with a matured U.S. Savings Bond: continuing to hold the bond and converting the bond.
In our previous example you will recall that Jim’s $10,000 Series EE (formerly Series E) savings bond has matured
20 years after the issue date. The increase in value from the original purchase price ($5000) to the original maturity
price ($10,000) reflects accumulated interest. If the bond is cashed out at this time federal tax is due on the
$5000 of interest income. Savings bonds are exempt from state and local tax. In the event that Jim doesn’t want
to redeem his savings bond at maturity he may choose to keep his Series EE bond beyond the twenty-year "initial
maturity." Jim may elect to keep the bond for an additional 10 years until "final maturity." In
this scenario the savings bond will continue to accumulate interest for another 10 years. This is a good choice
for Jim if he doesn’t need the income or principal immediately and wants to continue deferring the federal tax
on the bond’s accumulated interest.
Upon final maturity the bond will cease paying interest. In fact it is not uncommon for persons to own savings
bonds that have stopped paying interest altogether. It seems that many people simply forget about their savings
bonds or lose track of them. This is really good for the federal government (interest free loan) but not so good
for you the investor. If you are one of these people you may want to visit Error! Bookmark not defined. to retrace
your bond(s). Once the final maturity is reached Jim should again explore his original options: redeem, convert,
or donate. To convert the bond Jim may exchange the EE bond for HH savings bonds at one of thousands of authorized
financial institutions. This conversion will allow Jim to continue to defer the accumulated interest for another
20 years because it will be protected "inside" of the HH bonds. The series HH bonds will pay interest
that is fully taxable each year. Finally, upon the disposition of the HH bonds, the federal tax due on the accumulated
interest from the EE bonds will be due. Essentially that interest has been deferred for up to 40 years through
maturity, final maturity, and conversion to HH bonds. You should be aware that August 31, 2004 is the final cut-off
for exchanging your EE/E bonds for HH bonds.
In future articles we will discuss methods and merits of contributing savings bonds 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." |
|
|
