|The future of
savings bonds is paperless
That, Pederson, points out, will cost the government
money it is now saving.
"There are 10.9 billion savings bonds that haven't
been redeemed. That's a savings to the government of over $400 million
New bond rules
The flip side is that investors will have to pay federal
tax when a bond matures. Currently, a form 1099 isn't triggered
until the bond is cashed; under the new system a 1099 will automatically
be issued when the bond matures.
While some investors may not realize a bond has matured,
others don't cash it because they want to delay paying the tax for
a short period. The paperless electronic system will force investors
to comply with IRS rules.
"The rule," notes Hollenbach, "is you
report the income on a bond that reaches final maturity in the year
in which it happens -- whether you cash the bond or not."
Another change related to the electronic transition
is the discontinuing of the HH bond sometime mid-2004. Now, when
series EE/E bonds mature, investors can exchange them for series
HH, continue earning interest and defer paying taxes for another
"When the bonds mature the government will force
you to cash them in," says Jackie Brahney.
"Some people buy savings bonds with the anticipation
of deferring taxes for 20 years and now they've pulled that option."
Hollenbach says the HH doesn't fit in with the government's
plan, which is to eventually offer savings bonds and a full range
of Treasury bills and notes that investors can buy and redeem electronically.
Dan Pederson opines that the elimination of the additional
20-year deferral could be the government's way of speeding up tax
Not issuing paper bonds printed with a set purchase
price means investors will no longer be limited to the typical eight
denominations. Currently, if you have $62 available to spend on
a bond, but the denominations are $50 and $75, you have to reduce
your investment to $50. The electronic system will allow you to
invest any amount, including change, up to the maximum calendar
A major area that still needs work is buying bonds
for minors. Regulations require a person to be at least 18 years
of age to open a Treasury Direct account. Treasury officials say
they'll ask that the rule be changed so minors can have their own
electronic statement bonds.
In the near future, perhaps in 2004, current I and
EE bondholders will be asked to send in their paper bonds and establish
a Treasury Direct account. The exchange will not be mandatory; paper
bonds will be honored until final maturity.
Employees who purchase savings bonds through payroll
savings will have electronic accounts. Workers will tell their employer
how much money to put toward bonds and the employer will send the
money to Treasury Direct.
In another move to streamline costs, Treasury Direct
will stop accepting credit card payments as of Dec. 31, 2003. All
Treasury Direct payments will be debited from or credited to bank
Officials at the Bureau of Public Debt say they will
be launching a campaign to familiarize the American public with
Treasury Direct and the changes to the savings bond program.