Western Kentucky University

Legacy of Spirit – Office of Gift Planning





Hold Series EE Bonds at Least 20 Years – Then Get a Gift Annuity

A 3.5% interest rate on savings is hard to find these days, but that’s the rate enjoyed by owners of Series EE savings bonds – if they hold them for 20 years.   EE bonds double in value after 20 years, accounting for the 3.5% rate, but redeeming bonds earlier can result in significantly lower interest payments.  (For detailed information on savings bonds go to http://savingsbonds.gov).

After 20 years EE savings bonds will continue to earn interest until “final maturity” occurs, 30 years after the purchase date.  Keep in mind that EE bonds don’t provide “spendable income” until they are cashed, which typically results in taxation on the buildup of interest.  But what if there were a way to convert savings bonds to a lifelong stream of income with little or no tax?

Charitable gift annuities offer such an opportunity.  You can cash savings bonds and contribute the proceeds for a gift annuity that provides lifetime payments to one or two persons – plus a charitable deduction that can reduce or eliminate the taxes from redeeming the bonds.  Furthermore, a large portion of your payments will be tax free.

Here is an example of a donor we’ll call Herbert, who owns bonds worth $23,400.  If he cashes them in he will be taxed on about $12,000 of interest.  But if Herbert, who is age 80, gives the $23,400 in bond proceeds for a charitable gift annuity, he will receive a charitable deduction of just under $12,000 – virtually wiping out tax on the buildup of interest – plus payments of 6.8% ($1,591) a year for the rest of his life.  Furthermore, 79%t of his annual payments will be tax free during his life expectancy.

Herbert likes the idea of helping the University increasing his income and eliminating the tax from cashing the savings bonds.  The charitable deduction means that he actually has more money left from the bonds to produce income than if he had cashed them and reinvested the proceeds.