There is a way to continue deferring taxes. At maturity, you can exchange series EE bonds for series H bonds. At that point you begin receiving 4% interest twice a year for 10 years. Alternatively, if you cash in the bonds, you must pay the tax right away. When series EE bonds mature, you have one year to exchange for Series H if you wish. You cannot buy series H bonds directly; the only way you can get them is by exchanging EE bonds for them. If the tax would be 30% or more, the 4% on the whole amount amounts to the same dollar amount as 6% on what would be left after cashing in bonds and paying tax. Now, figuring a 10% return on the stock market, investing in equities is by far even better, although you would have all that tax to pay. But if your partner has never invested in equities and would be very nervous about this, the H (or HH) bonds are an option that will provide reliable income and avoid the tax man for another 10 years. Chris
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