US Savings Bonds

Archive for January, 2008

Question: Savings Bonds and taxation?

I have about 2000 dollars in US Savings Bonds. All have matured and a few have begun to collect interest. They have all been in my parents safe deposit box. I would like to cash them out and use them to buy a CD as I plan to move to Tampa, FL from Newark, DE in about 10months. What are the tax penalties against cashing out one’s Savings Bonds? Is there anyway to NOT cash them out, but move them to my own bank account?

Answer: U.S. Savings Bonds do not have to be cashed to move them. They should just be certificates that have been purchased in your name. When you are ready to cash them in, take them to your financial institution with your ID and cash them in; they are not linked to any particular financial institution.

Also, they have actually been earning interest since they were first purchased. A $50 bond is purchased for $25 and gradually increases in value to the full $50. I believe the interest rate is about 4%. If you keep the bonds as is, you will continue to earn that same rate of interest.

There are no penalties for cashing the bond other than you will have to declare the interest earned on them when you do your taxes. There are some ways to reduce your tax burden when Cashing Savings Bonds. I have given you a link that I found on the University of Washington web site.

You can do it tax free if it is for school and your adjusted income is less than $78,100. I also posted the IRS link below with that information.

Good Luck!

CSULB Economic Stabilization Act Panel Discussion

Question: Inherited US Savings Bonds Questions – taxes?

Series I Bonds from mother’s estate were jointly owned by mother and a child. Three of the five children’s bonds remain. (The other two batches were redeemed to help finance a new home for mother.) Now we need to distribute those bonds and other funds equally to the five children. Since the bonds have different accumulated interest (ranging from $2000-$5000) and everyone’s tax rate is different – what is the best way to fairly distribute these bonds? The I Bonds are now paying almost 8%!! OR, can the bonds be cashed and taxable to the estate? OR, is there some way to do this that I haven’t considered. THANKS in advance for any help!!!!

Answer: I am not sure about I-bonds, but MOST assets are inherited at the MARKET value on the date of death. That means any interest accrued up to the date of death is NOT taxed to anyone.

Question: Savings Bond advise?

I have been purchasing Series EE Bonds for about 2 years now, one $100.00 bond every month. I have 23 bonds. Should I start alternating with I Bonds? I know the EE Bonds stop losing interest at 30 years. Does that mean that the value only goes to $100.00? Or does it go above that? I need to know if these are good investments.

Answer: Contrary to the 1st responder you bonds continue to earn interest for 30 years. And at that time they will be worth much more than $100 each. You can go to here to find out the scoop.

http://www.treasurydirect.gov/indiv/products/prod_eebonds_glance.htm

I Bonds would be an alternative to consider. They of course are inflation protected.

Are they good investments? Not too good in my opinion. The return is very low. It is a decent way to save money that will not be tempted to spend but in my opinion a better approach would be to investigate investing with American Funds. If historic returns hold true, you will wind up with about 8% better return annually.

http://www.americanfunds.com/funds/returns/alphabetically.htm