US Savings Bonds have a long history of being a secure, safe, and easy way for investing money for long-term growth. The system was originally developed as a way for the cash strapped US government to borrow money from their citizens to help fund wars. Because it is a loan to the Federal Government, investors will get their money back, plus interest and additional Tax Benefits exclusive of Savings Bonds.
There are a multitude of Tax Benefits for Savings Bonds. These bonds are federally issued, thus making them tax exempt from local and state taxes. When cashing out a savings bond, there will be no taxes paid to your city or state for the profit generated from these investments. Federal taxes still apply and must be paid the year the bond is cashed out.
However, if they are cashed out to fund the continuing education for yourself, your spouse or your child all taxes can be avoided. To take advantage of this Tax Benefit for Savings Bonds, the person must go to a qualified college or university as determined by the government. The tax-free money can be used to pay for tuition and fees, but not for housing and other expenses, such as sports and hobbies.
Even though there are amazing Tax Benefits to Savings Bonds, there are some things to be aware of. If you are cashing out your bonds and not applying the profit to qualifying educational expenses, there will be taxes owed to the Federal Government.
Although as a Tax Benefits to Savings Bonds, there will be no income tax due to the state or city. The money earned needs to be included into the total gross for the year. Thus, depending on the tax bracket, it can fluctuate making the overall amount of taxes that need to be paid different thann originally anticipated for the year.
