A new inflation-indexed Savings Bond gives investors the choice of reporting the taxable interest now or later. Unless there are extenuating circumstances, you should opt to defer the taxes. Not only do you put off paying Uncle Sam, you can time things so you receive the money in retirement when you’re in a lower tax bracket.

Here are the details of the appropriately-named Series I bonds. Series I bonds are purchased at face value, rather than a 50% discount like Series EE bonds. They are available in denominations of $50 to $10,000 and earn interest for as long as 30 years. The interest paid is a combination of a fixed rate and an inflation rate measured by the CPI.

Like Series EE bonds, you have 2 choices when it comes to reporting the taxable interest:

1. YOU CAN DEFER THE TAX until final maturity or you redeem the bonds – whichever comes first. You don’t fill out any special IRS form if you opt for deferral. Just hold on to your bonds.

2. YOU CAN ELECT TO REPORT ALL THE INTEREST on an annual basis. This special election may sound tempting if you put Series I bonds in the name of your child or grandchild. However, be aware that the election applies to all other U.S. Savings Bonds issued at a discount rate, such as Series EE bonds. So the child has to pay tax annually on all Savings Bonds interest – forever. Once made, the election is irrevocable, unless you obtain permission from the IRS to change your reporting method.

Like Series EE bonds, the interest from Series I bonds may be wholly or partially tax exempt if the money is used for certain higher education costs.