TAX ADVANTAGES OF SERIES EE AND SERIES I SAVINGS BONDS

Interest compounding within an I Bond or Series EE Savings Bond grows tax-deferred until it is redeemed, or until it reaches final maturity which is usually 30 years, whichever comes first (You may also elect to report savings bonds interest to the IRS and pay the applicable federal income taxes annually).

Tax-deferred does not mean tax-free. Interest is taxed when withdrawn (and you accrue interest at final maturity even if you do not cash in the bond). If Series I Bond or EE Savings Bond interest is used to pay for college tuition and fees, and household income meets the IRS guidelines, the bond interest is excluded from federal income taxation (the education tax exclusion is described in 26 U.S.C. 135). Click here to review Savings Bond Education Tax exclusions.

In the past you could exchange your Series EE Savings Bonds for Series HH Savings Bonds and this allowed you to continue deferring federal income taxes on the EE Bonds’ interest earnings for up to an additional 20 years. However, this option went away after August 2004 when the HH bonds were discontinued.

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