Savings bond question.

[David1961]

I am 99% sure I know the answer, but will ask anyway. Starting in June of 1986, I started buying savings bonds each month for several months. Now that they will start to stop earning interest in June, I assume I will cash them in and pay the taxes on the interest. There is not any way I can convert them to another investment and defer taxes further is there?

 

[Taxman59]

DW inherited some 4% savings bonds in 2014. They were in a Treasury Direct account, and as they mature they are automatically converted to a Certificate of Indebtedness> this is just a US Gov. IOU with no interest.

 

[kaneohe]

For bonds issued after 1989, there is the education benefit:
https://www.treasurydirect.gov/indiv/planning/plan_tax.htm

"The education tax exclusion permits qualified taxpayers to exclude from their gross income all or a portion of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989. The bond owner must use the bonds to pay for qualified higher education expenses at an eligible institution. Find out more about Education Planning."

Otherwise, taxes are due for yr of maturity.

 

[Texas Proud]

NO. There used to be a bond where you could roll over the investment and delay taxes for another 30 years, but that was cut a LONG time ago...

IIRC, that bond would pay you interest every 6 months so no deferral on any new interest....

 

[RE2Boys]

NO. There used to be a bond where you could roll over the investment and delay taxes for another 30 years, but that was cut a LONG time ago...

.

These bonds were known as Series HH bonds, but they stopped offering them in 2004.

I know the suprise feeling as in late 1986, if memory serves me, they announced a change in the rules regarding what interest bonds would earn and on October 30th, I went out and bought a bunch at my local credit union with my CU savings. But now, 30 years later, they are worth 4.5 times what I paid for them, the difference is all interest taxable this year: about $18K

 

[GrayHare]

You can avoid the tax if you put the bonds into a 529 plan but only if you qualify past several limitations (details online).

 

[RE2Boys]

You can avoid the tax if you put the bonds into a 529 plan but only if you qualify past several limitations (details online).

Only if they were purchased after Jan 1990 and meet some additional criteria.

I intend to use just such a strategy for eligible bonds in the future as I have two HS boys. Hate to redeem any eligible bonds early as they are paying above interest rates on alternatives but hard to beat avoiding federal taxes on the interest.