Hi Moms,
I know nothing about savings bonds, but have heard that they double in value after 7 years from the time of purchase. Is this true? If I buy a $500 savings bond now through my bank for my toddler, how much will it be worth in 20 years? Is it tax deductible to buy, and it is guaranteed to NOT reduce in value and instead guaranteed to go up in value? Is there an annual maximum amount I can buy per year if indeed they are tax deductable? Is there a way to buy them pretax straight from my gross paycheck at work, to my bank before having tax taken out of my paycheck, sort of like how 401K contributions work, or is it all out of net pay that I buy these savings bonds? Does it matter what bank I go to buy savings bonds?
What happens when he needs to cash it as an adult? Does he have to pay tax on it?
Thank you.
ok I don't have the anwer here, but I would love to know the answers as well. Can you email me if you get an answer? ____@____.com Thanks
I'll start from the beginning. You can purchase a savings bond directly from the US Treasury or from any bank that has agreed to act as an agent for the Treasury. Not all banks will have the option of purchasing them or cashing them in, however most big banks will offer this service. When you purchase a savings bond, you will pay half of the face value ($25 for a $50 bond, etc...), for a Series EE. The face value is the dollar amount the bond will reach within 7-12 years depending on the market. With the Series I bonds, the face value is the dollar amount you paid for the bond and you accrue interest on the full dollar amount. The interest rate changes every 6 months, so if the rates go up, the bonds mature at a faster rate. If rates go down, they take longer (the rates are very low right now). I don't know if they are tax deductible (I really don't think they are bc we never offered them as a retirement option and if they were it would be a viable way to save for retirement), I do know that a lot of employers offer a program in which you can enroll and have money deducted from your paycheck automatically to purchase the bonds and you will rcv them in the mail. The treasury also offers this service directly. Also, you can cash a bond in as little as a year, however it will not be at face value yet (unless you have a Series I bond, the EE's are the most commonly used though). Bonds will actually go above and beyond face value if you choose to wait to cash them out (as was probably the case with Kelly D). They will continue to accrue interest for up to 30 years. Once you hit the 30 year mark, you need to cash them in because they are no longer accruing interest. Once you have cashed a savings bond, you will owe taxes on the dollar amount of interest that accrued and will need to claim it on that years taxes. The government will send you a tax form (I believe it's a 1099i) in the mail. So, if you paid $25 for a $50 bond and when you cashed the bond it was valued at $50, you would owe taxes on the $25 in interest that you earned. Oh and whoever cashes it, owes the taxes (Parents can cash for their underage children). Sometimes the bonds are made payable to both the parent and child, thus making it feasible for a parent to cash it for an adult child to avoid making the (generally) college student pay for the taxes owed. I think that about sums it up. You can always go into your bank and ask any questions you may have, things might have changed in the last couple of years since I worked at a banking center and it's always a good idea to be up to date. =o)
Good luck!
R.
Go to treasurydirect.gov to get the answers to your questions. They do double, but it's more like 20 years, not 7; and the interest rate you earn on them is very low. Better investment right now is a 529 education savings plan; and anyone (grandparents, etc) can contribute to the plan. If you are unsure about how to invest the money within the plan, consider a fund that is diversified and based on the age of the child when the $ is invested.
My mom is a financial advisor. But we're from Mn so that won't help you.
And not all financial advisors CHARGE for info! She meets with people all the time and shares info with them.
Do NOT put your money into bonds for your child. They do NOT double in 7 years.
Look into getting some mutual funds! That's what my kids have. Because the money is split between so many different companies, the risk is minimal. And more often, you get a much better return rate than on any other type of investment you could get for them.
They DO double in value but it takes while....I would advise you to look into a 529 college savings plan. Works like a 401K fund....
Just wanted to read the responses.
Hello A.. I don't have answers to all of your questions, but I can assure you that they do NOT double in value. When my daughter was born, we got her a $25.00 savings bond every year for her birthday, and her grandparents got her a $50.00 bond every birthday. She turned 18 last year and was so excited to cash them in and get some money but she really didn't get anything out of it. I wish I would have put that money into an interest bearing account for her. The savings bond go up every year in value, I think it's about 16 cents per $25.00 or something like that, but don't quote me, so the ones that were more recent had little to no value at all. Also, I'm not an expert on the subject, but I seriously doubt that you can purchase them pre tax, like a 401k deduction because it would still be a purchase. I hope you get some great answers on here :) Also, their value never decreases, as far as I know, but the value is determined (at the time they are cashed in) by the current rate, or rates throughout the time they were accruing interest.
Great question! I'll tune in for responses because I'd like to know too...
They do have to pay taxes on them.
We are currently taking a course called Finanicial Peace University. It takes you through becoming debt free then through saving for retirement, college, stocks, bond, investment.. the whole nine yards. The class was $100... but an finacial advisor would have cost a lot more and who knows what their motives are at times. Check it out, its by Dave Ramsey!
You need a financial adviser. Talk to some of your family members or rich friends and ask them who they use to manage their money, then set up an appointment with that adviser. This is very important and should be taken very seriously. Even if you don't have a lot of money, you should have someone helping you to find the right financial vehicles for your goals, since each person's goals and situations may differ.
My grandma used to buy us bonds every year for our birthday and it was nice to have $500-$1000 to help us buy books or groceries or whatever we needed when we went to college, but I think if you really want to do something that will have the possibility of giving your child a strong financial future, my mom put $1000 into a Vanguard account for my son that is supposed to give the child $1,000,000 by the time they are ready for retirement (though they can pull it out at any time...like for college or down payment on a house). Look up Vanguard online and see what options they have for your situation!
many years ago they did double, now takes many more years and can't e cashed in the 1st 6 months. Depending on how old of a child, might look more into a fund.
Savings bond do double, if you get the right ones. Buy EE series bonds. My husband and I, along with my childrens grandparents, have been doing this since they were born. Each Christmas and Birthday, they get a savings bond put away for when they are older. (along with their other gifts). They will have to pay taxes on them when they are cashed in. But the the amount is not very much. My husband has saving bonds that he cashed in for the down payment on our home. It's a wise investment for the kids. Also just a side note, with a saving account, it's to easy to get in a bind and take out some money with the intentions on paying it back.
It does not matter which bank you go to, they are ordered and mail to you by the US Treasurey.
You need to speak woth someone who does this for a living. Do not depend on the advice from all of us!! My financial advisor says that bonds are directly related to the interst rates. Yes they have been good and many people are buying them but interest rates are low, when they start going up you have a problem. Look into a college 529 savings plan. BONDs do not double automatically and many many lose value.
