More Tax Refunds Paid, IRS Reminds Filers About Savings Bond Option

From the IRS's newest press release:

The IRS is reminding those who haven’t filed their tax returns that they can receive their refunds in the form of savings bonds, payments to retirement accounts, mutual funds, as well as in the form of cash directly deposited to a checking or savings account.

By March 4, the IRS had issued more than 52 million refunds worth $161 billion for an average refund of $3,070.

For tax year 2010 returns, there are new savings bond options. Last year, if the taxpayer chose to receive a savings bond as part of the refund, it could only be issued in the taxpayers’ name. This year, taxpayers can designate anyone to receive a savings bond and also designate the co-owner or beneficiary. Also a new section was added to Form 8888, Allocation of Refund (Including Savings Bond Purchases), for entering savings bond information so that taxpayers no longer need to enter a pre-specified routing number. Instead, taxpayers will enter the bond owner’s name. The savings bonds will be mailed to the taxpayer or the person designated on the form.

Taxpayers who claim a tax refund on Form 1040 can use Form 8888 to split their refunds. Refunds can be directed into bank accounts and other financial institutions where their mutual funds or retirement accounts are managed and to purchase U.S. Series I Savings Bonds. Taxpayers can choose to use a portion of the refund to buy up to $5,000 in low-risk savings bonds, which earn interest and protect owners against inflation. The bonds must be purchased in $50 increments. Direct deposit of any remaining refund amounts is no longer required. Paper checks can be requested for the balance.

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Bonds: Avoid the next great bubble

“Fueled by a combination of fear and greed. ” That is how CNNMoney.com describes the bond market bubble. According to CNNMoney.com:

A projected $380 billion will pour into bond funds this year, more than went into domestic stock funds in the past decade. That's on top of a record $376 billion last year. All this money flowing in has made bonds very expensive.

It's true that bonds are less volatile than stocks. But in fact they lose money just as often as equities do. "I don't think the public understands they can lose money in bond funds," says James Swanson, chief investment strategist at MFS, an asset-management firm in Boston.

So that's the fear part. The greed part comes from an entirely different group of people: safety-loving folks who normally park their money in cash, such as bank savings accounts, CDs, or money-market funds. Fed up with the meager interest rates those accounts are paying these days -- the average taxable money-market fund yields 0.03% -- they're venturing into short-term bond funds to eke out a bit more yield.

Why the bubble could burst

One part of the bubble is already leaking air: long-term government bond funds. Because they invest in super-safe U.S. Treasuries and other forms of government-backed debt, they were a popular place to hide during the mortgage meltdown.

But when the economy began improving and rates on 10-year Treasuries began rising (from about 2% at the end of 2008 to as high as 4% in April before slipping to 3.3% today), these funds started suffering. In fact, the Vanguard long-term Treasury bond fund fell 12% in 2009 and, despite the recent run up in Treasury securities, is still down 5% since the end of 2008.

Experts say that's just the beginning. Read about the major factors that could harm bonds further here.

President Instructs IRS to Give Americans Easy Tax Time Option to Save

In the president’s weekly address last week, he made a big announcement about IRS forms. Starting in 2010, taxpayers will be allowed to purchase U.S savings bonds while filling out their tax return, simply by checking one box next time you fill out an IRS Form 1040. This will allow the IRS to use funds from your refund to order between $50 and $5,000 worth of savings bonds. According to Obama, “We have to revive this economy and rebuild it stronger than before. And making sure that folks have the opportunity and incentive to save. . .is essential to that effort.”

"We are thrilled to see the option to purchase U. S. Savings Bonds with tax refunds returned to the tax form," said Peter Tufano, a Harvard Business School professor and chairman of the not-for-profit Doorway to Dreams (D2D) Fund which has been working to restore the purchase option, removed from Form 1040 in 1968. "Saving is difficult for most people, as evidenced by low U.S. savings rates in the last few decades. Research shows that making it easy for people to save can boost savings, helping people take care of themselves and their families. The Obama administration is giving over 100 million refund recipients a universal, simple, and solid savings option."

"The process of buying a bond at a bank can be time-consuming and unfamiliar. Now the low and moderate-income clients we serve will have an easy way to create savings by checking a box," said Courtney Noble, United Way of King County Tax Campaign Manager and member of the Savings Bond Working Group, who, along with community-based groups nationwide worked with D2D and the Treasury Department on this project. "Moreover, enabling people to save at tax-time -- when refunds often give people the most money they will have all year -- will cultivate savings habits."

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