
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SATURDAY, April 21, 1990                   TAG: 9004210069
SECTION: BUSINESS                    PAGE: A5   EDITION: METRO 
SOURCE: The Baltimore Sun
DATELINE:                                 LENGTH: Medium

NEW TAX BREAK OFFERED ON SOME SAVINGS BONDS

U.S. savings bonds, relegated to the minor league of investment options until recently, are being promoted vigorously this year by federal officials hoping to attract new investors with a feature that makes some bonds exempt from federal income taxes.

The Series EE bonds, which are issued by the Department of the Treasury, now offer parents the opportunity to save for their children's college education and redeem the investments tax-free.

Savings bonds are already exempt from state and local taxes and earn 85 percent of the average yield on five-year Treasury notes. That variable rate is compounded semiannually and has averaged 8.2 percent since November 1982.

Under the new program, Series EE bonds purchased after Dec. 31, 1989, also will be free of federal income taxes if redeemed to pay for tuition and fees for colleges, universities, technical institutes and vocational schools.

Here's how the program works:

The bonds must be purchased by adults aged 24 years or older and spent on the bondholder's own education or the education of a spouse or child. Bonds cannot be issued in the name of a child and qualify.

To gain the full tax break, the bonds must be redeemed in the same year that an equal or higher amount of money is paid for qualifying tuition and fees. Room, board and books are not considered qualified educational expenses.

To qualify for the full benefit, bondholders cannot have income upon redemption exceeding $60,000 for married taxpayers filing jointly or $40,000 for single taxpayers.

Single taxpayers who earn more than $60,000 and those filing jointly who earn more than $90,000 are not eligible. Those with income levels in between are eligible for partial benefits. The income ranges are based on 1990 figures and will be adjusted for inflation.

The bonds can always be used for needs other than college tuition, but the tax break will not apply.

For example, a $500 bond costs $250. Investors can invest up to $15,000 a year, or $30,000 face value annually on savings bonds.

The bonds are guaranteed to earn interest for 30 years, pay the face amount in at least 12 years and are government-insured. They are typically sold by banks, savings institutions and through company payroll savings plans. But the government is phasing out the sale of $50 and $75 bonds through the payroll plans to cut processing costs.

by CNB