The I-Bond comes with a few tax advantages.
1. The earnings from I-Bonds are exempt from state and local income taxes.
2. While I-Bond interest is taxed at the Federal level, these income taxes can be deferred while you still own the bond. That means that Federal taxes can be deferred for up to thirty years, or until the time you redeem the I-Bond.
3. If you qualify, you can exclude all or part of the interest on I-Bonds from your income as long as the money is used are for eligible college educational institutions. Details are available in IRS Publication 550, “Investment Income and Expenses.”