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Originally Posted by jmjj215
Isn't the interest fed/state tax free?
By buying in smaller chunks you're "diversifying" in a sense - sounds good down that avenue also.
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State taxes - free
Local taxes - free
Federal taxes - deferred until you redeem them or after 30 years when the bond matures, but only the interest that they accrue is taxed. Interest is treated as income, and taxed in your tax bracket. If you're in retirement after 30 years and you are in a lower tax bracket, that works out well.
If you use the bonds for educational purposes (and the feds are tough about that
tuition and books but not pizza) and your income is low enough, the federal taxes are free. Here's where it also makes sense to not buy bonds in a lump. You want to avoid redeeming a $10,000 bond to pay for $5,000 worth of qualified expenses!
So if you have a lump of bonds and you wait for 30 years, you have what is called the "tax bomb". If you plan on getting a ton of bonds and plan on being in a higher tax bracket after 30 years (aren't we all?), you can pay taxes yearly on your bonds, but you have to do it at the start and for all your bonds.
So savings bonds are great but they're tricky! Not as straightforward as an ED/ING account.