Buy Tax Free Bonds
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Yes, you can. When you file your tax return, you can tell the IRS you want to save part or all of your refund and have the rest sent to your checking account. You can save part or all of your refund by submitting Form 8888, Allocation of Refund (Including Savings Bond Purchases)PDF when you file your return. Follow the instructions on Form 8888 to tell the IRS to make a direct deposit of the amount you designate to an IRA, to buy U.S. savings bonds, to make a direct deposit to a savings or checking account or other savings vehicles, or to request a paper check.
No, you don't need to open an account in advance with the Treasury Department. Complete and file the Form 8888 with your tax return. The IRS will arrange for your U.S. savings bonds to be mailed to you.
No, you don't need to have a bank account to purchase I bonds with your federal tax refund. If you purchase I bonds with your tax refund, you can elect to have any remaining refund amount not used to purchase bonds mailed to you as a paper check.
You can use all or part of your tax refund to purchase I bonds. Your request for bonds must be in increments of $50. Any remaining refund amount not used to purchase bonds will be mailed to you as a paper check or you may elect to have the remaining amount direct deposited into a checking or savings account.
Series I U.S. Savings Bonds are sold under this program. They are a low-risk, liquid savings product that earn interest and provide protection from inflation. Although savings bonds are not marketable in that they cannot be bought or sold in secondary security markets, they can be redeemed for principal and accrued earnings at any time after 12 months. See details below.
You can buy savings bonds in increments of $50. You buy them at face value, meaning if you pay $50 using your refund, you get a $50 savings bond. This calendar year, you can buy up to a total of $5,000 in paper series I savings bonds with your refund. Any unused amount of your refund can be sent to you in a paper check, or you can elect to have the remaining refund direct deposited into an account of your choice.
Example: Bill is entitled to a $2,500 federal income tax refund. He decides to save $1,000 of the refund by buying savings bonds, to save another $1,000 by having the IRS direct deposit that amount to his IRA, and have the IRS direct deposit the remaining $500 to his checking account. Bill gives the IRS these instructions by completing Form 8888 and attaching it to his Form 1040. On the Form 8888, he checks the appropriate checking or savings boxes, gives the IRS the routing and account numbers for his IRA and checking accounts and completes the information specified in the Form 8888 instructions for the bond purchase. Six $50 savings bonds, one $200 savings bond and one $500 savings bond will be mailed to him.
Savings bonds are designed as longer-term investments, and generally cannot be redeemed during the first 12 months after you buy them, unless you live in an area affected by a disaster, such as a flood, fire, hurricane or tornado. Waivers for areas affected by disasters are announced on the TreasuryDirect.gov website. If you redeem a savings bond within the first five years, the three most recent months' interest will be forfeited. After five years, no penalty will apply.
Yes. Savings bonds purchased with a tax refund will be issued as paper bond certificates in your name. If you are married and filed a joint return, the savings bonds will be issued in your name and your spouse's name. If you purchase savings bonds for someone else, the bonds will be issued in the name(s) that you listed on Form 8888.
Savings bond interest is exempt from state and local income tax. Savings bond interest is subject to federal income tax; however, taxation can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first. You also have the option of claiming interest annually for federal income tax purposes. Savings bonds are not exempt from any applicable estate, inheritance, gift or other excise taxes, whether federal or state. Tax benefits also may be available when redemption amounts are used to pay education expenses.
Qualified taxpayers may be able to exclude all or part of the interest earned from eligible savings bonds issued after 1989 when paying qualified higher education expenses. Savings bonds must be issued in the name of a taxpayer age 24 or older at the time of issuance. Married couples must file jointly to be eligible for the exclusion. Other restrictions and income limits apply. See Publication 970 for more information.
The Bureau of the Fiscal Service is authorized to replace lost, stolen or destroyed savings bonds. You can file a claim by writing to: Treasury Retail Securities Services, PO Box 214, Minneapolis, MN 55480-0214, completing FS Form 1048PDF. You should keep records of your savings bond serial numbers, issue dates, and social security or taxpayer identification numbers in a safe place. This information will help speed up the replacement process.
Your savings bonds are ordered after the IRS completes processing your tax return. Once ordered, it may take up to three weeks for your savings bonds to arrive in the mail. If you're having a portion of your refund deposited directly into your bank account, you may receive your refund before your savings bonds arrive by mail.
The first step is to check the status of your refund by going to the Where's My Refund feature on IRS.gov or calling 800-829-1954. You can generally get information about your refund 72 hours after the IRS acknowledges receipt of your e-filed return, or three to four weeks after mailing a paper return. If the IRS has processed your refund and placed the order for your savings bonds, you will need to contact Treasury Retail Securities Services at 844-284-2676 to inquire about the status of your savings bonds.
In addition, the IRS sets rules each year restricting the volume of tax-exempt PABs that can be issued by each state. For 2021, each state may only issue up to the greater of $110 per capita or $325 million. Therefore, very expensive projects that would be qualified PABs, such as building a new high-speed intercity train, may require issuance of some taxable bonds as well.
Taxable bond issuance surged again in 2019. From August 2019 to November 2020, between 15% and 40% of municipal bonds issued each month were taxable. In October 2020, borrowers issued $45.2 billion in tax-exempt municipal bonds and $25.1 billion in taxable municipal bonds. (In comparison, corporations issued $152.9 billion in bonds in the same period.)
One big reason is a provision of the 2017 Tax Cuts and Jobs Act, which prohibited the use of tax-exempt bonds for advanced refunding transactions, a refinancing maneuver we describe below. Previously, when interest rates declined, issuers of tax-exempt municipal bonds could issue a second tax-exempt bond to refinance their debt. Now, entities that want to use advanced refunding must issue taxable bonds.
With the 2017 Tax Cuts and Jobs Act, the city can only issue these refinancing bonds if they are taxable. However, current interest rates on taxable muni bonds are so low that the advanced refunding maneuver is still attractive. In the second half of 2019, nearly 80% of taxable bonds were used at least partly for this type of refinancing.
Taxable municipal bonds also may be more attractive to people in lower tax brackets, for whom the tax exemption is less valuable. Assuming a 5% state income tax, someone in the 22% tax bracket will keep 83% of the interest on a taxable municipal bond; someone in the 35% tax bracket who would also owe state income taxes and an additional 3.8% Net Investment Income Tax (the Obamacare/ACA tax) will keep only 56% of the interest. Depending on current interest rates, someone in a lower income bracket might find the (after-tax) yield on taxable municipal bonds appealing.
Generally, a bond that matures in one to three years is referred to as a short-term bond. Medium- or intermediate-term bonds are generally those that mature in four to 10 years, and long-term bonds are those with maturities greater than 10 years. Not all bonds reach maturity. Callable bonds, which allow the issuer to retire a bond before it matures, are common.
Savings bonds are also issued by the federal government and backed by the \"full faith and credit\" guarantee. Unlike many other types of bonds, only the person(s) in whose name a savings bond is registered can receive payment for it.
The two most common types of savings bonds are Series I and Series EE bonds. Both are accrual securities, meaning the interest you earn accrues monthly at a variable rate and is compounded semiannually. Interest income is paid out at redemption.
Most corporate bonds trade in the over-the-counter (OTC) market. TRACE, the Trade Reporting and Compliance Engine, provides real-time price information for corporate bonds. TRACE brings transparency to the fixed income market and helps create a level playing field for all market participants by providing comprehensive, real-time access to bond price information.
Agency securities are bonds issued by U.S. federal government agencies (other than the U.S. Treasury) or by GSEs. Most agency bonds pay a semiannual fixed coupon and are sold in a variety of increments, generally requiring a minimum initial investment of $10,000.
With the exception of bonds issued by Ginnie Mae, agency securities are not fully guaranteed by the U.S. government. The issuing agency will affect the strength of any guarantee provided on the agency bond. Evaluating an agency's credit rating before you invest should be standard procedure. Many credit rating agencies make this information available on their website.
Municipal bonds, or muni bonds, are issued by states, cities, counties, towns villages, interstate authorities, intrastate authorities and U.S. territories, possessions and commonwealths to support their obligations and those of their agencies. They are generally backed by taxes or revenues received by the issuer. 59ce067264
