US Savings Bonds

Archive for the ‘Taxes on Savings Bonds’ Category

Question: Can an old college debt be tax deductible?

This year I had to pay my old university back for the classes I took because I transfered to a new university. I could not get my transcipts sent to the new school until I sent them payment in full. I was unable to get a loan to pay for this so I cashed in some Savings Bonds and withdrew some money from my 401k. Is there anyway to off-set the penalties and interest that I encured since this was a school debt? I do have additional expenses for my new school already listed. Thanks!

Answer: In order to avoid the 10% penalty on the 401k withdrawal, the withdrawal has to be less than your qualified educational expenses. So it seems that you are exempt from the penalty. Attach Form 5329 to your return.

Tax on the savings bond interest may be excludible as well. Use Form 8815 to figure the exclusion and attach it to your return.

If there are additional educational expenses that were not paid with the 401k withdrawal or the Savings Bonds, you may be able to take a deduction or credit for those expenses.

Sandy Aitken

Question: Some question about the tax plan?

It’s my term project which has two questions.

First, for purposes of retirement savings and considering the tax implications, is it better to fund a retirement plan with stock and hold taxable bonds outside of a tax-sheltered retirement plan or vice-versa?

Second, if I find my wife and I erred in investing in Tranditional IRAs and would prefer to be in Roth IRAs. What suggestions can you offer?
Thank you for any answer.

Answer: Your first question cannot be answered because it depends on your investment goals, income level, and other factors. Are the stocks income producing that pay dividends or growth stocks on which you earn capital gains? Capital gains are taxed at a lower rate, and in the retirement plan they will be taxed at your regular rate when you withdraw them. But the plan may grow much faster than the bonds. Who is managing the taxable account? If you manage it yourself, can you perform as well as the retirement plan custodian? There are too many unanswered questions.

You can convert a traditional IRA to a Roth, but you have to pay the tax on the withdrawal. Whether this is in your best interest again depends on many factors. Check the IRS regulations and perhaps get advice form a qualified financial planner.

Question: my mom died leaving no money to pay taxes. will the irs come after my sister and myself?

before she died she cashed in a bunch of EE Savings Bonds and gave the proceeds away without leaving anything for taxes.

Answer: You have my condolences on your loss.

The complete and accurate answer depends on the definition of a “bunch.” The important factor is how much of the bunch was income. It used to be easy to figure out how much of the proceeds from cashing in US Savings Bonds, but the US Treasury has made things a little more difficult. http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds.htm

I’m guessing from your question that your mother was single. If that assumption is correct, then she could have income of $9,350 in either 2009 or 2010 without incurring an income tax liability.

If she cashed in $100,000 of bonds, and the income portion was $35,000, then there may be a problem. Even though she didn’t have any money when she died, did she have a will? The IRS would likely start with the person named as the executor and trace the money to the recipients.

I hope this helps.
Gary

The New Three-Legged Stool