Series I Savings Bonds: What Readers Want to Know

A popular investment backed by the US government has recently become even more attractive, especially for tax-smart investors who are worried about inflation.

I wrote in a column earlier this year about the tax benefits and other aspects of Series I savings bonds. That column collected a lot of follow-up questions from readers of the Wall Street Journal. The popularity of these investments The US Treasury announced a few weeks ago that the initial annual rate of new Series I savings bonds sold from May to October this year was 9.62%.

To be sure, no investment is suitable for everyone. But there are a number of interesting features of the Series I bonds that they represent a “fantastic” investment opportunity, says Berton Malkiel, author of “Random Walk Down Wall Street” in the investment classic.

So, here are the answers to some of those readers’ questions as well as other questions that investors may have about bonds.

If I bought these Series I savings bonds, what is the minimum time I have to hold them?

At least one year. If you can’t lock up any money for at least that long, then these bonds are not for you. But if you can, remember that they can continue to earn interest for 30 years, or until you decide to cash them in, which comes first. If you redeem them five years ago, you will lose interest for the previous three months. “For example, if you cash an I bond after 18 months, you will receive interest for the first 15 months,” the Treasury website said.

If I buy now, will I get that 9.62% rate as long as I hold the bond?

No. This 9.62% rate is the initial annual rate of new I bonds sold from May to October this year. The Treasury site says the rate is “applied for 6 months after purchase.” “For example, if you buy an I bond on July 1, 2022, 9.62% will apply until January 1, 2023. The interest is compounded semi-annually.”

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Do you have questions or suggestions about Series I bonds? Join the conversation below.

The Treasury resets the rate every six months based on a formula linked to inflation. Since no one knows exactly what will happen on the inflation front, we do not know today that the new initial rate will start in November.

“The rate update affects both new and previously issued bonds,” a Treasury spokesman said. “The compound interest rate applicable to a Series I savings bond is updated every six months from the time the bond is issued until the bond matures.” For more details on how bonds earn interest, see the Treasury site

Is there a limit to how many of these bonds I can buy each year?

Yes. According to the Treasury, the annual limit is $ 10,000 per person. You can buy bonds electronically from, and you can buy up to an additional 5,000 a year on paper I bonds using your federal income tax refund. Also, many investors buy Series I bonds not only for themselves but also as gifts for relatives, friends and others.

If you purchased them as a gift, the purchase amount is calculated “on the recipient’s annual limit, not the donor’s,” the Treasury says. Asked if the limit could be increased, the Treasury spokesman replied: “There is no proposal under consideration that would lift the cap.”

I bought a I 10,000 Series I bond late last year. Do I have to wait up to 12 months to buy more from the day I bought them? Or can I buy more at any time this year?

You do not have to wait 12 months. You can buy more anytime between 2022 According to a Treasury spokesman, “the annual purchase limit applies on a calendar-year basis and is reset on January 1”.

Interest rates have generally risen significantly. Can the value of this bond go below my purchase price?

No. The Treasury says the value of your I bond cannot be less than the amount you paid for them: “The interest rate cannot go below zero and the redemption value of your I bond cannot decrease.”

What are the most important tax benefits with savings bonds?

Interest income on savings certificates is exempt from all state and local income taxes. This could be a significant attraction for many high-income investors in high-tax areas such as California and New York City. (But some states, including Florida, Texas, Washington, and Nevada, do not have state income taxes.) The Tax Foundation has state tax returns.

Ask questions

  • You have a question about taxes

Partial or all interest may be deducted from federal income tax, but only in certain circumstances. “Using money for higher education can prevent you from paying federal income tax on your interest,” according to the Treasury. But there are important limitations, such as the size of your income and other fine print. The income threshold usually changes every year. For details, see IRS Form 8815.

Another interesting feature that may surprise some taxpayers is: Bondholders have flexibility in deciding when to report interest income. Most taxpayers choose to defer reporting interest until they file a federal income tax return for the year they are, “what is the value of a bond with interest,” the Treasury says. But there is another option: report interest every year, which can be a smart move for someone with little or no taxable income.

For more information, see TreasuryDirect’s answers to the most frequently asked questions

Separately, one reader asked a question about eligible charitable distribution, or QCDs, a tax-smart strategy that many older investors use to make charitable donations from a traditional personal leisure account. Specifically, the reader wanted to know if taxpayers who distribute a qualified charity and are eligible to deduct the full amount from income could deduct that transfer in their federal income tax return as a charitable donation.

Answer: No. “You cannot claim a charitable contribution waiver for a QCD that is not included in your income,” the IRS publication stated in 590-B.

Nevertheless, this strategy can still be valuable to many older taxpayers for a variety of reasons. A QCD typically allows investors aged 70½ or older to transfer $ 100,000 per year directly from the IRA to a qualified charity without any taxable transfer. If done correctly and you are 72 years of age or older, this transfer will be calculated regardless of the minimum allocation you need for that year. Also, it is not included in your consistent total income, which is a significant number that can affect many other items in your tax return.

Caution: Donor-consulted funds are not considered eligible charities for this purpose.

Mr. Herman is a writer from California. He was previously a columnist for the Wall Street Journal’s tax report. Send comments and tax questions to [email protected]

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