the coupon to create a pair of new securities. For this reason, zero-coupon bonds issued by corporations are often purchased in tax-deferred plans such as, individual Retirement Accounts (which postpones the tax liability). The bonds will provide income for the children without increasing their tax liabilities.
In a twist on these offerings, some zero-coupon corporate bonds can be converted into shares of stock in the issuing company. Zero-coupon bonds are also appealing for investors who wish to pass wealth on to their heirs but are concerned about income tax or gift taxes. This process, often referred to as stripping (as the coupon is stripped away from the debt instrument results in a zero-coupon bond that can be sold to investors; the future interest payments can also be sold to investors. " for details.) Of course, if held until maturity, the payout will be predetermined and does not change. Purchasing zero-coupon bonds that mature at that time can be a convenient way to help cover the expense. Unique Characteristics, why would anyone want a bond without the interest? (See " Why Do Interest Rates Tend to Have an Inverse Relationship With Bond Prices?
If your goal is to help the child pay for an education, it is fairly easy to predict the year in which he or she will start needing the money. How to Buy Zero-Coupon Bonds Zero-coupon bonds issued by the federal government can be purchased directly from the Treasury at the time they are issued. Interest income from corporate zeroes is taxable, however, and unfortunately investors must pay income tax on it each year, even though they won't receive the earnings until the bonds mature.
While the terms of the savings bond program has changed, and bonds are only available in electronic form, they still exist and are still a valid jack and jones rabattkod studentrabatt example of how zero-coupon bonds work. Issues and Issuers, zero-coupon bonds come in many varieties. In either case, paying less in taxes is always good news, because it puts a greater percentage of the earnings generated into investors' pockets instead of Uncle Sam's. The recipient, on the other hand, will receive significantly more than 1,000 when the bond matures. Who Would Want Them? Zero-coupon bonds are also an interesting option for investors with little interest in watching the financial markets move up and down. A little time and effort, to make sure you understand the investment and have made the right choice for your needs, can go a long way toward helping you feel comfortable and confident enough to wait many years (or decades) for your investment to mature. Zero-coupon bonds are bonds that do not make any interest payments (which investment professionals often refer to as the coupon ) until maturity.
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