Dear Terry,
It appears that, according to an article in your column in the money section, I have a problem and need some serious advice.

We have EE bonds, over 100,000 K, that matured years ago. We have left them sitting, since they are our best and safest investment, because we bought them when the interest could never go below 4%.

Even for years after we bought them, you could invest those funds in H or HH bonds when they no longer paid interest, without having that huge tax bite in only one or two years. Then I just read that the HH no longer exists and that cannot be done after all. (Ouch!) You would think that as much as I read the Money Pages in the paper, I would have seen something since this occurred years ago.

It looks as if we will have to just divide, and redeem, them over the next seven years (That’s when they quit paying interest) to spread it out at least that much. That will still hurt since we also have to take our minimum distribution each year as well, resulting in quite an income tax bill.

Is there a way that we can leave some of it in the EE bonds drawing interest and pay part of the tax on those in advance? I have no idea if that can be done or not. We will lose a good part of our retirement savings, if we can only divide it by seven years.

If it wasn’t for your column, I would never have even been aware of this until the seven years were up. Thanks for all your wonderful advice and I hope you can help with this. We are definitely not wealthy and have no long term care insurance. That’s why we have saved these bonds so long.

Thanks so much,

Terry Says:  OK, I understand your problem — but don’t be quite so despairing.  Yes, you will pay taxes on the bonds in the year in which you cash them, and if you wait until they reach final maturity the taxes will be due in that year. (Note: you say that the EE bonds matured “years ago” — but most EE bonds haven’t yet reached “final maturity” — so check it out by creating a bond inventory at www.Savingsbonds.com.  Jackie Brahney who runs that website, will help you with a cash-in report that tells you exactly which bonds to cash, and when.  You might not want to spread out the sales, but take them all in one year if possible — so you are only lifted into a higher tax bracket for that year.

Stay calm.  Just as with RMDs you will be forced to pay taxes on money that you wish you could keep growing tax deferred.  But after you pay the taxes, probably only about 30%, since there will be no state income tax on the EE bonds, you will have money left over.  There is no law that says you have to spend it!   Just keep it safe, earning low interest at present.  It looks like rates will start rising.  This is not the worst problem in the world to have.