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EE Bonds: A Long-Term Investment Tool

EE Bonds: A Long-Term Investment Tool Hilltop Wealth Solutions

EE bonds are a little-known type of bond that can be accessed through the US Treasury. However, the unique part about them is that they are guaranteed to at least double in price by the time they reach maturity, which is 20 years from when they were issued. These bonds could be a solid investment option to consider for yourself or if you have young children or grandchildren and wish to support their financial future.[1]

The bonds are sold in denominations of $25 up to $10,000. They are sold online through the treasury. You can name yourself as the owner of the bond, or you can name someone else as the owner. For example, if you would like the bond to be in the name of your child or grandchild, you can list it as such at the time of purchase.[2]

These bonds are taxed either as they gain interest or when they are cashed according to the preference of the purchaser. When EE Bonds are cashed, they are added to your income for the year, and they are taxed at your income rate. This is important to know because if you own many of these bonds and are interested in cashing them, they will be added to your annual income as opposed to capital gains. This can cause the cash of your EE bonds to be taxed at a higher rate than you were expecting. EE Bonds are only charged at the federal level for income and are not usually subject to city or state taxes. Also, you are only charged taxes on the interest accrued from the bond. This means that if you paid $25 for the bond and it is worth $50 at maturity, you will only have to pay tax on the $25 the bond generated (not the full value of the bond which is $50).[3, 4]

One of the benefits of an EE series bond is that if the bond is cashed while a person is paying for educational expenses (like college), the bonds are excluded from income tax. There are many specific rules related to this exemption, but with the right planning, they can be accounted for.[5]

Like any investment option, it’s important to know that your financial situation may or may not call for this investment. If you are curious about how you should be allocating your wealth to best benefit you and your family in the long term, please reach out to our professionals and we can address your financial questions and discuss your situation.

 

[1-3] https://www.investopedia.com/terms/s/serieseebond.asp
[4] https://www.treasurydirect.gov/savings-bonds/tax-information-ee-i-bonds/
[5] https://www.bankrate.com/investing/series-i-bond-for-college/#:~:text=Using%20Series%20I%20bonds%20for%20college%20savings&text=The%20federal%20government%20allows%20qualified,at%20an%20eligible%20educational%20institution
 
This blog is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date noted and may change as subsequent conditions vary. Please consult with a Hilltop Wealth Solutions, LLC financial advisor to ensure that any contemplated transaction in any securities or investment strategy mentioned in this newsletter align with your overall investment goals, objectives, and tolerance for risk.
Hilltop Wealth Solutions (“Hilltop”) is a registered investment advisor with the Securities and Exchange Commission (“SEC”) and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure and Client Relationship Summary (Form CRS) for additional information regarding the qualifications and business practices of Hilltop. Hilltop Wealth Solutions, LLC is an SEC Registered Investment Adviser firm. Hilltop Tax Solutions, LLC, is an affiliate of Hilltop. Wealth Solutions that provides tax and bookkeeping services.
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