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U.S. Series EE Bonds

U.S. Series EE bonds are government savings bonds that are issued by the Treasury in small denominations (as small as $25); these bonds have variable interest rates. Bonds are purchased at half of face value, and when the bonds mature, full face value is paid. The interest rate paid on EE bonds is fixed for six months; interest rates are set biannually.

Series EE bonds are liquid in the sense that they can be cashed at any time after one year. Ideally, you should hold them for at least five years to ensure that there will not be an interest penalty; after five years, these bonds can be cashed at any bank. Interest rates are competitive. Required minimum balances are low, and these bonds can be purchased in denominations from $25 to $10,000. Series EE bonds are very secure because they have an implicit government guarantee. Other features include interest being exempt from state and local income tax; interest may even be tax free if the interest and principal are spent on eligible college expenses (mainly tuition and fees). One drawback to Series EE bonds is that there is a three-month interest penalty if you withdraw funds before the specified term is over. Information on rates and how to purchase Series EE bonds can be found at www.Savingsbonds.gov. Investors can purchase savings bonds up to $5,000 per year in electronic bonds and $5,000 per year in paper bonds. If your Modified Adjusted Gross Income (MAGI) is above specified limits in the year bonds are cashed, you cannot exclude the interest income from your income taxes for EE and I Savings bonds. The limits are:

Year       Filing Single            Married Filing Jointly

2007    $65,600-80,600             $98,400-128,400

2008    $67,100-82,100           $100,650-130,650

2009    $69,950-84,950           $104,900-134,900

2010    $69,950-84,950           $104,900-134,900

Your modified Adjusted Gross Income is your adjusted gross income adding back certain items such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.


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