Tax status of US securities

In a recent Monitor story, a financial expert was quoted as saying she has ''roughly 40 percent of her assets in tax-exempt US government securities.'' (Not simple savings bonds, but higher-interest securities.) My broker, however, told me US government securities were not tax exempt. Will you please clarify this for me? C. K.

US government securities include US Treasury bills and government agency notes.

The interest from Treasury securities, issued in denominations of $10,000 or more, are not exempt from federal taxes, but they are exempt from state and local taxes. This makes them particularly attractive to people in cities or states with heavy tax burdens.

Government agency notes are issued by such agencies as federal home loan banks, the Small Business Administration, or the Federal Home Loan Mortgage Corporation. They come in a greater variety of denominations than T-bills. Treasury securities are considered the safest investments, but agency notes come in a close second. In most, though not all instances, interest earned from government agency notes is also exempt from state and local taxes, though not from federal taxes.

If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.

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