You won’t owe state or local income taxes on the interest earned, but you will owe federal income tax — although you can wait until you redeem the bonds to pay it. (If you use the money for higher education, you may be able to avoid part or all of the federal taxes.)
Inflation bonds pay interest for 30 years unless you redeem them earlier. You can redeem digital I bonds online and have the money deposited in your bank account. If you still hold paper bonds, you can redeem them at local banks, according to Treasury Direct.
Savers who bought I bonds years ago, when the fixed-rate component was higher, may be earning double-digit composite rates now. Holders of bonds issued from May to October 2000, for instance, will earn 10.85 percent because the latest variable inflation rate is added to the bonds’ fixed rate of 3.6 percent, said Ken Tumin, founder of DepositAccounts.com.
To see what rate your bond is currently paying, check on TreasuryDirect, the website operated by the Bureau of the Fiscal Service, part of the Treasury Department.
So how do you buy I bonds? There are two ways. The first is to purchase them at TreasuryDirect.com. To do this, you’ll first need to establish an online account with a minimum deposit of $25 and link it to your bank account. You won’t receive a paper bond; most new savings bonds are electronic and remain in your digital account.
You can buy up to $10,000 in digital I bonds per person, per year.
The second way is to buy I bonds at tax time with your federal income tax refund. You can buy up to $5,000 in bonds this way — the only way left to get paper savings bonds.
A couple filing a joint tax return can buy up to $25,000 a year — $10,000 each, plus an extra $5,000 at tax time. It’s possible to buy more, by purchasing I bonds as gifts.
Article source: https://www.nytimes.com/2021/11/03/your-money/series-i-bonds-inflation-rate.html
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