U.S. Savings Bonds - Sort Of, Kind Of Tax-Free For College
NEW YORK (AP) _ It’s a simple, catchy slogan: ″U.S. Savings Bonds - Now Tax-Free for College.″
But critics say the Treasury’s ad campaign for Series EE Savings Bonds is too simple and is catching the wrong people.
Responding to the criticism and suggestions from the Federal Trade Commission, the Treasury is planning new ads that also would direct college savers to official brochures. There, potential investors will learn they might not be able to get the whole tax break.
The tax benefit is phased out for people who make more than a specified limit. This year, the limit is $62,900 for married couples filing joint tax returns and $41,950 for single filers. Each year the limit will be raised along with inflation.
Also, any interest accumulated from the bonds counts toward income when figuring whether the tax break applies.
That might be news to some who relied on the Treasury Department’s ads or, until recently, its brochures to buy the bonds. The Treasury’s Savings Bond Division only recently made it clear in its brochures that interest accumulated on the bonds might push savers into the taxable category.
Since the tax benefits took effect last year through August, more than $13.6 billion worth of the bonds have been sold.
Peter Roberts, chairman of the Princeton, N.J.-based College Savings Bank, which sells an FDIC-insured certificate of deposit specifically aimed at college savers, has been the Treasury’s chief critic.
Roberts not only wants the Treasury to fully disclose the limitations of the bonds, but also a campaign of ads to correct any misperceptions held by investors.
″Where we have room, we go into the full-blown explanation of it. When we say it in a more simplified form, they contend we’re not saying enough,″ said Richard Schneebeli, deputy executive director for sales and marketing at the Treasury’s Savings Bond Division.
Roberts said he thinks a lot of people were misled by the campaign and are in for a surprise from the Internal Revenue Service when they cash in the bonds to pay for books and tuition.
Schneebeli said the Treasury doesn’t think it misled anyone. However, he said the 1989 law allowing tax benefits for some who use the bonds for college is very complex and they chose to avoid a lot of detail in the ads.
″We never intended to confuse the public,″ Schneebeli said. ″We seem to have confused Mr. Roberts, but at the same time he has a competing product.″
Roberts’ federally insured certificate of deposit has no tax advantages, but is guaranteed to grow at the same rate as college costs, as measured by the College Board.
Roberts and his lawyer, Garret G. Rasmussen, think there is a double standard at work.
Securities and Exchange Commission regulations for securities advertising make firms emphasize to potential clients they they must read the prospectus carefully before investing.
If a private institution had been as vague in its advertising as the Treasury, ″An effort would be made to enjoin them from advertising and the FTC would seek restitution on behalf of consumers who have been misled,″ Rasmussen said.
But nobody seems to have jurisdiction for regulating Savings Bonds. The SEC doesn’t because they’re not securities that can be traded. The FTC, while it suggested changes to the Treasury, has no regulatory authority in the matter.
″There’s nothing you can do but try to expose it,″ Rasmussen said.
″I think there should be corrective advertising, but I don’t think they’ll do it. It’s difficult to get people to admit they’re wrong.″
Schneebeli said the Treasury has examined their advertising and they feel nobody was misled. But still, the Treasury is changing the ads.
A new print ad for Savings Bonds specifies that the bonds ″may″ be tax free and that investors should talk to their banker before investing.
In the new ad, the quick slogan is replaced with ″By Buying Bonds, You Can Bypass the Taxman.″ A 150-word text goes through some of the limitations on the bonds.