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(Part of a series of articles on charitable giving and the Union County Foundation by David Vollrath - Executive Director) I can just imagine what Roy Rogers might say about savings bonds…"Savings Bonds sure are complicated for being so simple." In our last column we discussed the merits and implications of continuing to hold a savings bond or converting the bond at maturity. This week we will talk about the possibility of donating the savings bond to charity. In our example you will recall that Jim’s $10,000 Series EE savings bond is maturing 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 maturity federal tax is due on the $5000 of interest income. Savings bonds are exempt from state and local tax. Jim has always supported his local YMCA so he wonders if he can just transfer ownership of his savings bond out of his individual name into the name of the local Y. He also wonders what the tax implications of such a transaction might be. Jim is disappointed to find out that U.S. Treasury regulations restrict the lifetime reissue of savings bonds. He can transfer savings bonds to family members and living trusts but it is not permissible, during life, to transfer savings bonds to charity. Even if Jim were allowed to transfer the savings bond to charity he would be subject to federal income tax on the $5000 of accumulated interest. There is a way that Jim can accomplish his charitable goal and potentially avoid any federal taxation. To accomplish this Jim needs only to let his savings bond mature and redeem the $10,000 value at his local financial institution. With $10,000 now in hand Jim simply visits his local YMCA and donates the $10,000 cash proceeds from his matured savings bond. The tax consequences of this simple transaction are as follows: the $5000 of untaxed accumulated interest from the matured savings bond is in most cases offset by the charitable deduction Jim received from his donation to the Y. If Jim itemizes his deductions on Form 1040 and can deduct at least $5000 of his gift this year, than the tax on the savings bond interest income is offset. If Jim can deduct the full $10,000 gift in this year then he will benefit from additional tax savings In future articles we will discuss the possibility of Jim donating his series EE savings bonds in exchange for a charitable gift annuity. 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 commfounduc@imetweb.net, 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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