How to Purchase U.S. Securities From the Source

Q: How do I purchase Treasury securities directly from the government? Can I buy these for my individual retirement account, as well as for my personal account? Is there a difference in the safety levels of Treasury bills and Treasury notes? --T. T. R.

A: All Treasury securities are equally backed by the “full faith and credit” of the U.S. government and can be purchased directly from the government with no additional sales commission. You may purchase these securities for your IRA, but only for an account for which you are not the trustee. For example, a self-directed IRA held on your behalf by a savings and loan or bank could make the Treasury security purchase through the bank or S&L.; That said, you would still be wise to explore the financial wisdom of investing in partially tax-free securities through a tax-deferred account because you stand to lose the tax breaks offered by the Treasury securities. Consult a qualified accountant or financial planner.

You might also want to carefully consider the wisdom of buying Treasury securities now. Interest rates have been dropping in recent months, and although many economists expect a continuing decline as the nation attempts to spur renewed economic health, uncertainties abound, particularly the potential for conflict in the Persian Gulf. Many advisers are suggesting only short-term Treasury purchases for the time being.

Now here’s how to buy the securities:

Bonds, ranging in maturity from 10 to 30 years, are available, in $1,000 increments up to a maximum of $1 million, from the Federal Reserve Bank or any of its branches. The Los Angeles branch is located at 950 S. Grand in the downtown area. You may also buy your bonds by mail by writing to the Bureau of the Public Debt, Washington, D.C., 20239. Personal checks are accepted. Bonds are traditionally auctioned four times a year--February, May, August and November--and the interest rates paid by the bonds are set at these times.

Treasury bills and notes are shorter-term instruments than bonds. T-bills, as they are known, are sold in three-, six- and 12-month maturities and are available in $5,000 increments from a minimum of $10,000 up to a maximum of $1 million. Three-month and six-month bills are auctioned every Monday; 12-month bills are sold once a month.

Treasury notes come in a variety of maturities and amounts. Two-year and three-year notes are available in increments of $5,000 from a minimum of $5,000 to a maximum of $1 million. Four-, five-, seven- and 10-year notes are available in increments of $1,000 from a minimum of $1,000 to a maximum of $1 million. Two-year notes are sold monthly; the rest are sold quarterly at different times during the year.

You may buy any of the bills or notes directly from any Federal Reserve branch, or by mail. If you want to buy by mail, you should establish a “Treasury Direct” account with the Federal Reserve before you make your first purchase. To do this, simply write to the Federal Reserve and request the forms for opening this account. Southern California residents should write to P.O. Box 2077, Terminal Annex, Los Angeles, Calif. 90051. Mark your envelope “Attn: Securities Information.” You may also obtain a detailed auction schedule by writing to the above address. Again, be sure to mark your envelope to the attention of securities information.

Once you have opened a mail-order account, you may order T-bills or notes by mail, by sending a check made out to the Federal Reserve Bank to your closest Federal Reserve Bank branch. Treasury bill purchases must be accompanied by a cashier’s check; a personal check will suffice for Treasury note purchases. Southern California residents should write to P.O. Box 2077, Terminal Annex, Los Angeles, Calif. 90051. Certified mail is recommended to ensure that the order arrives at least one day prior to the auction.

What are the tax advantages of buying Treasury securities? Interest paid is exempt from any state and local taxes. However, the interest is not exempt from federal taxes, nor from California state tax when the securities are purchased for an IRA. Therefore, if you bought securities especially for your IRA, you would be, in effect, forgoing the tax break from the state.

How to Get ‘Durable Power of Attorney’

Q: In a recent column, you mentioned a “durable power of attorney.” Can you tell me more about this document and where I can get one? --H. B.

A: A durable power of attorney is a more permanent variation on the traditional power of attorney, the document typically used when someone wants to hand over responsibility for his affairs to another.

While a traditional power of attorney remains in effect only with the continuing consent of the giver, a durable power of attorney, by contrast, remains in effect until it expires or is canceled. It is considered especially helpful in cases where the giver becomes so severely incapacitated that he can no longer give the continuing consent that a traditional power of attorney requires. Armed with a durable power of attorney, family members and friends can gain access to an injured or elderly person’s financial assets and papers to provide, for instance, necessary medical attention.

These documents are available at stationery stores that carry legal forms and can be completed, signed and held for safe keeping.

For more information, consult the “Power of Attorney Book” by Denis Clifford, a $19.95 handbook that contains an exhaustive explanation of all types of powers of attorneys, how they should be executed and maintained, as well as copies of the necessary documents. You should be able to find the book at your local public library or book store. You may also order the book from its publisher, Nolo Press in Berkeley, by telephone. California residents may call (800) 640-6656; residents elsewhere in the United States, (800) 992-6656.

NOTE ON TAX RATES: Social Security rates for 1991 remain at 7.65% for employees. This amount includes 6.2% directly for Social Security benefits and 1.45% for Medicare insurance. The 6.2% Social Security tax will apply to the first $53,400 earned by an employee. However, as a result of the 1990 tax law changes, the 1.45% Medicare insurance tax will apply to yearly earnings up to a maximum of $125,000.