The Federal Deposit Insurance Corp.'s fall issue of Consumer News (available online at http://www.fdic.gov) discusses a new option for taxpayers who wish to receive their federal income tax refunds by direct deposit.

Beginning in early 2010, taxpayers will be able to apply their tax refunds to purchase U.S. Savings Bonds, even though they do not have an existing account with the U.S. Department of Treasury.

Currently, taxpayers can use direct deposit of their refunds and split the refunds among up to three different accounts and three different U.S. financial institutions. Taxpayers can choose among savings, checking, or retirement accounts.

Buying U.S. Savings Bonds will simply be an additional savings option offered.

Detailed information on the new refund option is available from the IRS at http://www.irs.gov/pub/irs-tege/ibond_questions_answers.pdf.

According to the Internal Revenue Service, the plan allows for the purchase of Series I Savings Bonds in denominations of $50, $100, $200, $500, and $1,000 -- up to a calendar year maximum of $5,000.

The bonds are issued in paper certificate form in the names of the taxpayers.

Before choosing the option, however, taxpayers should consider the advantage and disadvantage of saving through the use of savings bonds.

Savings bonds are safe and offer other advantages, such as federal income tax deferral on interest earned and the exemption of interest on state taxes. However, bond restrictions can affect investment value for particular individuals.

Series I bond information is available at http://www.treasurydirect.gov/tdhome.htm.

 

Opinions are solely the writer's. Joseph Pellicciotti is a lawyer, professor and vice chancellor at Indiana University Northwest.