EEBonds : time to face value?

http://www.treasurydirect.gov/indiv/research/indepth/eefixedratefaqs.htm

EE bonds do indeed take 20 years to reach maturity. They continue to acrue interest after that, and they are not taxed, two possibly positive features. But I'm simply not qualified to say if they are the right investment for retirement, as that is a fairly individual decision.

In 1993 and 1995, I bought several 30 year EE bonds. At that time, I was told that the bonds would reach face value in about 14 years. I'm glad I bought the EEs, when I did!

More and more taxpayers are investing in U.S. Savings Bonds. The popularity of Savings Bonds is due in large part to their safety, relatively low cost, and tax deferral advantages. Since 1990, the Bonds have had an added feature that will allow owners to entirely exclude interest accrued on the Bonds if used to pay for qualified educational expenses.

Series EE Savings Bonds are sold for half of their face value. When held for five years or more, the interest on EE Bonds becomes market based, retroactive to the first day of purchase. The bonds currently receive interest at either 85% of the average return during that time on marketable Treasury securities with five years remaining to their maturity or a guaranteed minimum of four percent.

Some investors purchase Series EE Savings Bonds for their favored tax treatment under tax law that gives owners a choice in reporting interest. Taxpayers may pay tax on interest as it accrues or defer paying tax on the interest until the bond is redeemed. Interest on Series EE Bonds escapes state and local income tax altogether.

The tax treatment of Series EE Bonds makes them an attractive investment for saving for college education for children. If the Bonds are purchased in the child's name, the accrued interest is taxable to the child when the Bonds are redeemed, usually at a time when the child will probably be in a lower tax bracket than his parents. Alternatively, children owners may elect to report the interest as it accrues and use their annual standard deduction to reduce or eliminate tax altogether. Children who elect this method of reporting interest should file a 1040EZ tax return for the first year in which Bonds are owned even if no tax is due.

The election to use one method of reporting is not irrevocable; the IRS will allow Bond owners to switch the method of reporting interest. Thus, Bond owners have the flexibility of reporting Bond interest as current income for a few years, then switching over to postpone the interest, and then changing back to the accrual method. Taxpayers can make the switch only once every five years and, when a switch is made, it applies to all Bonds owned by the taxpayer. To change methods of reporting, taxpayers must complete IRS Form 3115 and attach it to the federal income tax return for the year concerned.

Starting in 1990, there has been an alternative method for using Series EE Bonds for college savings plans. The interest on qualified U.S. Savings Bonds issued after 1989 is entirely free from federal tax if used to pay for higher education costs.

There are four basic restrictions to the qualified Savings Bond exclusion program. First, the exclusion is available only for Bonds purchased on or after January 1, 1990. Bonds purchased before this date will not qualify. Secondly, the Bond must be issued to an individual who is at least 24 years old. Thus, a parent or grandparent must own the Bond and, if it later turns out that the Bonds will not be used for college expenses, the accrued interest will be taxed to that individual. Third, the exclusion is phased out as the adjusted gross income of the taxpayer exceeds certain levels depending on the owner's filing status. For married taxpayers filing jointly and surviving spouses, the exclusion of the interest begins phasing out at $81,100 and is completely phased out at $111,100 for 2000. For all other taxpayers, the exclusion of the interest begins phasing out at $54,100 and is completely phased out at $69,100 for 2000. The final requirement is that the amount of the interest on the redeemed Bonds must be lower than qualified higher educational expenses of the child, the taxpayer, or a spouse. Educational costs are broadly defined as including tuition and fees (not room and board or expenses for courses involving sports, games, or hobbies that are not part of a degree program). Thus, it is possible that the exclusion will not be available if the child receives a scholarship or attends a military service academy.

Taxpayers must distinguish the tax reporting rules for Series EE Savings Bonds from those that apply to HH Bonds. Series HH Bonds are current income securities that are available only in exchange for eligible Series EE or E Savings Bonds with total redemption values of $500 or more. Interest on Series HH Bonds is paid semiannually and must be reported for the year in which it is paid. The interest is not subject to state or local income tax.

The original of the above article may be found at HERE.

More info at US Department of Treaury: EE Bonds FAQ

Redemption of EE and H bonds also differs, much to my surprise as I learned the other day at the bank. According to the bank manager, H bonds can not be redeemed at your local bank, as can EE, E or I bonds.

The H bonds have to be sent to the Federal Reserve bank . Your local bank usually can do this for you. Thus, while redemption of EE, E and I bonds can usually be done immediately, that of the H bond will take about 2 weeks total time.

i want to know the value of my ee bonds. is there a web site i can get that information?

Yes, there is an excellent website.

Just google, US Savings Bonds, Redemption, Value.

The site lets you tabulate the values, and even permits you to store this information.