Savings bonds have some of the friendliest tax treatment in personal finance. Here’s how to make the most of it. (This is general information, not tax advice — see a professional and the taxes page.)
The basics
| Tax | I & EE bonds |
|---|---|
| Federal income tax | Yes, on interest |
| State & local income tax | Exempt |
| Default timing | Deferred until you cash (or 30-yr maturity) |
| Tax form | 1099-INT from TreasuryDirect |
Three useful moves
- Defer until you choose. The default is that you owe no federal tax until you redeem. That lets you time redemptions to a low-income year (retirement, a gap year, a low-earning year) when your bracket is lower.
- Use the education exclusion. Under the Education Savings Bond Program, interest is fully tax-free if you cash the bonds in the same year you pay qualified higher-education expenses, subject to income phase-outs and the rule that the bond owner was 24+ at issue. Claimed on IRS Form 8815.
- Elect annual reporting for kids’ bonds. For a child with little income, electing to report interest annually can make it fall under the child’s standard deduction — potentially tax-free as it accrues. The election is all-or-nothing across your bonds, so weigh it carefully.
Don’t forget maturity
At 30 years the bond stops earning and the interest becomes taxable that year even if you don’t cash it. Track your oldest bonds and redeem matured ones. Estimate accrued interest with the value calculator.