Redemption Options -- Living Owner

• According to Tom Adams, author of the "Savings Bond Advisor," a savings bond registered to a living minor can be redeemed by a custodial parent with whom the child lives by making a declaration on the back of the certificate that certifies that the redeeming party is the parent of the bond owner and that the child resides with that parent. The statement must also include the child's age and a parental opinion that the child is not mature enough to make the request on his own behalf. There is no minimum age restriction for savings bond ownership.
  
  

Redemption Options -- Deceased Owner, POD Named Beneficiary

• When the registered savings bond owner dies before the named payable on death (POD) beneficiary, that individual becomes the owner of the instrument and may either have the certificate re-registered in his own name or cash it in accompanied by appropriate identification and a certified copy of the registered owner's death certificate. Savings bonds are redeemable after one year and forfeit three months interest when cashed in before five years. Select commercial banks are appointed by the U.S. Treasury to provide redemption services. Bond owners may be directed to mail the savings bonds to the nearest Federal Reserve Bank for redemption or re-registration in cases in which the sole registered owner has died.
  
  

Accrued Interest Taxation

• Taxation of accrued interest is deferred until the savings bonds are redeemed or mature. The U.S. Treasury currently issues only Series EE and I bonds that mature in 30 years. After maturity, they stop paying interest and should be redeemed. Accrued interest is taxed as ordinary income to the bond owner or his estate if he owned the bonds at the time of his death. Treasury Direct calculates that a $100 Series EE bond purchased for $50 in January 1980 had a maturity value of $331.48, accruing $281.48 of taxable interest at an average annual yield of 6.41 percent
  
  

Accrued Interest Tax Exemption

• Some or all of savings bond accrued interest may be excluded from taxation when bonds registered to an adult, age 24 or older, are redeemed to pay tuition and other approved educational expenses, excluding room and board, for that parent's child or for the bond owner's own educational expenditures. To qualify in 2011, a single parent earning a modified adjusted gross income up to $70,100 receives a 100 percent tax exemption on the bond's accrued interest, phasing out completely at $85,100 of income. For married couples filing jointly, the limits are higher -- a full exemption is available for those with an income up to $105,100, decreasing proportionally to no tax break for incomes above $135,100.