We are a couple in our late 70"s and have several SERIES E U.S. SAVING BONDS that are at the 30 year maturity date each month now., MY questions are (1) should we cash in these bonds even though they have not all fully all matured ,and pay the taxes on the interest ,(2) if we cash them in is there some place to invest so there is not as much tax to pay,(3)if we chose to not cash them in and we pass away will our 4 children be able to redeem them even if their names are not the bonds THANK YOU .

Terry Says:

The law says you MUST cash them in in the year of maturity.  That can add a substantial burden to your taxes — because all the accrued interest since purchase is considered ordinary income.  (That’s unless you elected to pay taxes along the way each year, which almost nobody ever did!).   And that “extra” income could have an impact on many seniors benefits that are income-dependent, such as your monthly Medicare Part B premium, or perhaps even subsidized housing for seniors!

Don’t cash in bonds that have not yet matured, because you will lose some of the interest that is due to be paid at maturity.  And perhaps you can spread out the cash-in over the next two years, reducing the annual tax impact.

You did a good thing buying Savings Bonds long ago, but now you have to pay the taxes due.  When you get the cash, you can either put it in the bank — safely earning nothing — or spend it.  Or you can gift some money to your grandchildren if you think you have more than enough cash.  But I wouldn’t buy any more SavingsBonds for them, because the deal has changed and they are no longer a good investment.

People have left matured bonds in their safe deposit boxes (yes, all Savings Bonds used to be paper bonds) for their heirs to cash in.  And if your estate isn’t complicated, there is unlikely to be a Federal tax audit.  But when your heirs cash them in, there will be taxes to be paid.  And they will have to go through the time-consuming and expensive probate process to prove they are the heirs.  Far better to comply with tax laws and cash them in when they mature, paying the taxes when they are due.  Consider it a windfall to your thrift and enjoy the money!

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