GET TAX EXEMPTION BY INVESTING IN I-BONDS
I-bonds from U.S Treasury are considered as a safe investment plan to protect your money from depleting through inflation. It also gives you a chance to save your money as these bonds are tax-exempted. I-bonds can be obtained directly from the government-backed U.S treasury at the prices ranging from $50 – $10,000.
The maximum amount that you can invest in I bonds in a year is $60,000. The bonds that are worth $30,000 can be bought in electronic form while the same amount of bonds can be purchased in paper form.
It is important to know about the mechanism of profits in such investments. These bonds have two part profit system. One of these is the fixed rate of interest that is set at the time of purchasing. This is the amount that you will earn without considering any factors. While the second part is variable and is associated with CPI-U (Consumer Price Index set for Urban consumers). The second interest rate is subject to changes biannually in accordance with the changes in the Index.
These bonds are preferred when you are planning for long-term investments such as for your retirement plan. These are valid for 30 years but it doesn’t mean that you cannot cash them early. These bonds can be sold after a year of their purchase, but remember this point that you will have to pay penalties if you cash these bonds within a period of 5 years. Around one- fourth of the annual interest rate will be deducted as a penalty. But after a period of five years, you can get these bonds cashed without any penalty.
You earn profits in the form interest every month from these bonds. And you get compound interests on your money semi-annually. But the bad thing about these bonds is that you get no profits in your hands until and unless you redeem your bonds. For selling your bonds, you have to go to Treasury.
These bonds are considered as a risk-free investment as these are under the hold of federal government of U.S.A. it is ensured that at least you will get your capital back along with the fixed interest amount when you sell these bonds. As long as you have your money in the form of I Bonds, you are exempted from all types of federal and local government taxes. And when you redeem your bonds, you will have to pay tax only on your capital exempting the profits you have earned. If you use this money for funding the education, no taxes will be applied.
In case, if the period of deflation comes, the variable rate of interest will become negative and the worth of bond will not grow. But it should be remembered that the value of bonds can never go below their actual price. Beside the fact that I bonds provide a risk free modes of investment, these bonds are used to protect your savings from taxation. Through this investment plan, you can also fight with the inflation rate.