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Reply to "Saving for college: keep in your reg investments or separate just for college"
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[quote=Anonymous]From the wikipedia article linked by PP: [quote]In the United States, a zero-coupon bond would have Original issue discount (OID) for tax purposes.[3] Instruments issued with OID generally impute the receipt of interest (sometimes called phantom income), even though these bonds don't pay periodic interest. [4] Because of this, zero coupon bonds subject to U.S. taxation should generally be held in tax-deferred retirement accounts, to avoid paying taxes on future income. [b]Alternatively, when purchasing a zero coupon bond issued by a U.S. state or local government entity, the imputed interest is free of U.S. federal taxes, and in most cases, state and local taxes, too.[/b][/quote] I have no expertise in this whatsoever--in fact, I'm the clueless PP who originally started asking questions about backdoor Roths. But I suspect the tax-free gov bonds were maybe the ones the zero-coupon PP was referring to? [/quote]
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