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Receiving Series I US Savings Bonds as part of 2010 Tax Refund

This year, the IRS is extending its option for taxpayers to receive Series I US Savings Bonds instead of a cash refund.  This option first began in early 2010.

As you prepare your tax return this year, you can opt to receive part of your tax refund as U.S. Savings Bonds. Savings Bonds are a low-risk, liquid savings product that adjust for inflation. The process is relatively simple. Form 8888, known as Allocation of Refund (Including Savings Bond Purchases), from the IRS allows you to allocate how you will receive your refund. You can have it directly deposited into a bank account, mailed to you as a check, or invested directly into savings bonds. You can also divide your refund between these options. A maximum of $5,000 of refund can be used to purchase US Savings Bonds. The bonds are available in $50 increments.

Last year, if the taxpayer chose to receive a savings bond as part of their refund, the only available option was to issue the savings bond in his/her name.  This tax year, the IRS is continuing to allow the purchase of savings bonds with the additional option of designating another person as the co-owner or beneficiary.

The bonds in question are Series I Savings Bonds, which the U.S. Treasury sells for face value. You can redeem such a bond, plus the accumulated interest on it, after twelve months have passed — although if you redeem a bond you've held less than five years, you'll give up three months worth of interest. Series I Bonds earn a combination of a fixed rate and an inflation rate. The fixed rate stays the same for the life of the bond, while the inflation rate changes every six months. New rates are set every November and May. The last fixed rate set (November 2010) is 0.00 percent, which means bonds bought before next May will be relying entirely on their inflation rate for income. You can see a list of recent rates on the U.S. Treasury's website.

Last year, the IRS reported that the agency received 22,500 tax returns requesting over 99,000 savings bonds totaling $11,190,200.

If you would like to discuss this topic in detail, please contact your Alpern Rosenthal Business Advisor.