In about 30 years, most savings bonds stop earning interest (or achieve maturity). A savings bond can be redeemed as soon as one year after purchase, but it’s normally best to wait at least five years so you don’t miss out on the last three months of interest. If you redeem a bond after 24 months, for example, you will only receive 21 months of interest. It’s usually better to wait until your bond reaches full maturity, depending on the interest rate and your individual financial demands.
You’ve Stopped Earning Interest
If a savings bond has stopped collecting interest, it’s a no-brainer to cash it in. Cashing in your savings bond early may be an option to explore depending on your current financial circumstances.
Before cashing in your savings bond, it’s always a good idea to do some research. Bonds can be paid in for their current value as early as the one-year mark. If you cash out before the five-year period has passed, you’ll lose three months’ worth of interest.
Cashing Out vs Creating Debt
If you’re in desperate need of money right now, Redeeming a savings bond is better than taking on debt, according to Yusuf Abugideiri, partner and senior financial planner at Yeske Buie, a financial consulting firm with offices in San Francisco and Washington, D.C.
“While you will be charged a price for early redemption of your savings bond, it is a one-time payment,” explains Abugideiri, compared to the recurring cost of interest on a credit card or personal loan.
Calculating Bond Value
The current value of a paper savings bond can be calculated using the Treasury’s online calculator. It should tell you how much the bond is worth today, how much you paid for it when you first bought it, how much interest you’ve earned so far, and how much money you’d get if you sold it right now. To check the value of your electronic bonds, go to TreasuryDirect.gov.
When cashing in savings bonds, how do I avoid paying taxes?
Cashing your EE or I bonds before maturity and using the money to pay for education is one strategy to avoid paying taxes on the bond interest. The interest will not be taxable if you follow these guidelines:
- The bonds must be redeemed to pay for tuition and fees for you, your spouse, or a dependent, such as a kid listed on your tax return, at an undergraduate, graduate, or vocational school. The bonds can also be used to purchase a computer for yourself, a spouse, or a dependent. Room and board costs aren’t eligible, and grandparents can’t use this tax advantage to aid someone who isn’t classified as a dependent, such as a granddaughter.
- The bond profits must be used to pay for educational expenses in the year when the bonds are redeemed.
- High-earners are not eligible. For joint filers with modified adjusted gross incomes of more than $124,800 (more than $83,200 for other taxpayers), the interest exclusion begins to phase out and ceases when modified AGI reaches $154,800 ($98,200 for other filers).
The amount of interest you can omit is lowered proportionally if the profits from all EE and I bonds cashed in during the year exceed the qualified education expenditures paid that year.
What is the procedure for selling bonds?
- Whether you have a local bank account and it accepts savings bonds, inquire if it will accept yours. The answer may be contingent on the length of time you’ve had an account there. If the bank will cash your check, find out if there is a monetary restriction on redemptions and what kind of identification and other documentation you’ll need.
- Send these, along with FS Form 1522, to Treasury Retail Securities Services (download or order). The bonds are not required to be signed. You’ll need to verify your identity. The instructions are on FS Form 1522, in the “Certification” section. Our address is also included in the form.
What is the value of a $100 savings bond dated 1999?
A $100 series I bond issued in July 1999, for example, was worth $201.52 at the time of publishing, 12 years later.
Is it possible to pay in a 30-year bond early?
Savings bonds are a relatively “secure” investment, but reaping the full advantages takes a long time. If you hold the bonds for 20 years, you can expect to double your money, but they can collect interest for up to 30 years. It is possible to cash out early, but you will forfeit some of the benefits.
When you cash in your savings bonds, do you have to pay taxes?
Taxes can be paid when the bond is cashed in, when the bond matures, or when the bond is relinquished to another owner. They could also pay the taxes annually as interest accumulates. 1 The majority of bond owners choose to postpone paying taxes until the bond is redeemed.
Is it wise to invest in I bonds?
- I bonds are a smart cash investment since they are guaranteed and provide inflation-adjusted interest that is tax-deferred. After a year, they are also liquid.
- You can purchase up to $15,000 in I bonds per calendar year, in both electronic and paper form.
- I bonds earn interest and can be cashed in during retirement to ensure that you have secure, guaranteed investments.
- Interest is a combination of a fixed rate plus an inflation rate. The interest rate for I bonds purchased between November 2021 and April 2022 was 7.12 percent.
How much will my savings bonds be taxed?
When you must pay taxes on Treasury-issued savings bonds is usually determined by the type of bond and the length of time you hold it. You have two choices from the Treasury:
- Defer reporting interest until you redeem the bonds, give up ownership of the bonds, and they are reissued, or the bond has matured and no longer earns interest.
It’s common practice, according to the Treasury Department, to withhold reporting interest until bonds are redeemed at maturity. The redemption process is automated with electronic Series EE bonds, and interest is reported to the IRS. The IRS Form 1099-INT is used to record bond interest earnings.
It’s vital to remember that interest on savings bonds is taxed in multiple ways. The interest gained on savings bonds is liable to federal income tax and federal gift tax if you redeem them with the interest earned. Interest earnings are not subject to state or local income taxes, but you may be subject to state or estate taxes depending on where you live.
Is there a penalty for not cashing in savings bonds that have reached maturity?
Your link has finally matured after three decades of waiting. If you wish to cash in your bonds, you must follow specific requirements depending on the type of bond you have (paper or electronic).
- You can cash electronic savings bonds on the TreasuryDirect website, and you’ll get your money in two days.
- Most major financial institutions, such as your local bank, accept paper savings bonds.
If you can’t find your fully matured paper savings bond, you can have it electronically replaced by going to the TreasuryDirect website and filling out the necessary papers.
You’ll need the serial number of the bond, which serves as a unique identity. If this isn’t accessible, you’ll need other information, such as the exact month and year the bond was purchased, the owner’s Social Security number, and the names and addresses of the bond’s owners. Even if you’ve misplaced the bond, it’s possible to find it with a few efforts.
You can keep your bond after it matures, but you will not get any extra interest. On the one hand, because you can’t spend a savings bond without redeeming it, the value of your bonds is considered “secure.” On the other side, if your bond isn’t redeemed, you’ll miss out on additional sources of interest. With current inflation rates, it doesn’t make much sense to hold a bond that pays nothing and is losing money to inflation every day.
Finally, regardless of whether you redeem your bonds or not, you will owe taxes on them when they mature. In the year of maturity, make sure to include all earned and previously unreported interest on your tax return. If you don’t, you may be subject to a tax penalty for underpayment.