Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Tax implications of cashing EE savings bonds (in mass)
Old 11-24-2015, 08:45 PM   #1
Confused about dryer sheets
 
Join Date: May 2006
Posts: 6
Tax implications of cashing EE savings bonds (in mass)

Not been around her for a while (since I am enjoying retirement).

My question is about what to do NOW with the mass of EE savings bonds that my (now) wife and I accumulated a while back that will start being fully matured starting in about 4 years. We were both single at the time of the initial purchases and each bought 15K of them each year since we had no sort of 401K plan back then and looked to bonds for tax deference.

I never really gave much thought to them and thought I could cash them in whenever I wanted to (after 30 years maturity) but just read something in our local paper that said "You MUST pay Fed income tax on bonds in the year of FINAL Maturity.... Even if you DONT cash them in". "Cashing in a lot of bonds in one year (or being forced to pay taxes on final maturity in mass in my case) could result in enough untaxed interest income to put us in a much higher tax bracket or pay more for Medicare Part B" (which we will be starting to do Medicare next year when we both hit 65.

We never did elect to pay taxes on an annual basis (few people do).
We just bought em for a few years and forgot them until recently.
They were going to be our rainy day fund if we ever needed them but it never rained so they just sat earning their 4 percent (untaxed).

My (now) wife and I BOTH individually maxed out on bonds for many consecutive years and while they are still making 4 percent until they mature, unpaid interest on them will be almost 3 times face over what we paid for them. They will start reaching FINAL Maturity in large lumps for a few years in a row that we were buying these in mass in 90, 91 and 92 (maybe begin of 93). We quit buying them when the rate dropped below the 4 pct mark but still maxed out the year of the drop before it dropped to below the 4 percent since we bought at the begin in each year.

I understand that I can cash them in early and pay the tax on them in that year I cash them. Also am aware that there is a specific month (twice a year) in which interest is paid on these so as not to lose the interest if cashed in on the wrong month.

Request Opinions on weather I should start cashing some out (that are not at full 30 year maturity) NOW to ease off some of the mass interest that I will incur when they all start maturing in mass every year to smooth off at least part of the large interest spike for the later consecutive years. I got 4 years to do this to smooth but if I start in December of this year, I will have 5 years. (or is there a better way?)

They are all 4 percent rates so would it be better to cash the ones from 93 first (worth less) than the ones from 1990?

Sorry for being so long winded here.

Thanks in advance for your thoughts on this.
__________________

__________________
Dovetonsils is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-24-2015, 09:43 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,271
I would start cashing them in ASAP....

I would calculate how much I have total and spread the equally over the remaining years... the tax issue is the problem now.... not trying to keep the 4% rate...


BTW, you can download a program that will tell you how much each are worth and what is the next month interest accrues... do not cash them in until after an interest accrual or you give up interest...

It is called Savings Bond Wizard...
__________________

__________________
Texas Proud is offline   Reply With Quote
Old 11-24-2015, 09:53 PM   #3
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
It's after tax returns that matter. Also, we've got progressive taxation so only the amounts above the bracket limit get taxed at higher rates.

Honestly, I think I'd rather pay taxes on the extra $14K (30K * 1.04^30 - 30K * 1.04^26) than give up the returns. However, if waiting will, for example, cause your qualified dividends and ltcg to be taxed at, say, 15% instead of 0%, by all means start cashing them out now.

Maybe try to model the effect on taxes with TaxCaster of doing lump sum versus cashing out partially.
__________________
hnzw_rui is offline   Reply With Quote
Old 11-25-2015, 12:01 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,271
Just a question... did you pay $15K cash each or buy $15K face value

Makes a big difference in the current value....
__________________
Texas Proud is offline   Reply With Quote
Old 11-25-2015, 12:28 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,928
Quote:
Originally Posted by hnzw_rui View Post
..........................................

Maybe try to model the effect on taxes with TaxCaster of doing lump sum versus cashing out partially.
Seems like you would need to do this since you are asking a quantitative question........if you are worried about IRMAA........increased Medicare B
premiums, this suggests that you might already have significant "base" income w/o these bonds. If true,then you might already be in the 25% marginal bracket so any increases in bracket from the EE interest would be less scary than the 15%---->25% transition (25%---->28% or 28%------>33%) .
If you do find that you need to even out the income flow, I would guess that
you'd want to take the oldest first .........that way each group when cashed in would have about the same age.
__________________
kaneohe is offline   Reply With Quote
Old 11-25-2015, 07:22 AM   #6
Thinks s/he gets paid by the post
JoeWras's Avatar
 
Join Date: Sep 2012
Posts: 2,518
Quote:
Originally Posted by kaneohe View Post
Seems like you would need to do this since you are asking a quantitative question........if you are worried about IRMAA........increased Medicare B
premiums, this suggests that you might already have significant "base" income w/o these bonds. If true,then you might already be in the 25% marginal bracket so any increases in bracket from the EE interest would be less scary than the 15%---->25% transition (25%---->28% or 28%------>33%) .
If you do find that you need to even out the income flow, I would guess that
you'd want to take the oldest first .........that way each group when cashed in would have about the same age.
Right, there's not enough information from the OP to understand the goals. If they are currently in the 33% bracket, maybe wait? What are the other goals at maturity? ACA? IRMAA? Etc.

By the way, the US Gov used to have something called HH bonds where you could roll them and defer some interest for a while. They took that away. it sure helped my mom and dad who had war bonds. (I think that is why they actually had the program.)
__________________
JoeWras is offline   Reply With Quote
Old 11-25-2015, 07:26 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Jul 2002
Posts: 1,038
Since you mention the bonds were purchased in 1990 and after, they are eligible for the educations bonds interest exclusion (see IRS Pub 970 and Form 8815).
So if you have any grandchildren, you could fund a 529 plan with the proceeds of cashing in the savings bonds and claiming the education interest exclusion, assuming you meet the income and other conditions. Funding a 529 plan is considered an eligible education expense for this interest exclusion.
And in some state,you can get a credit or deduction for contributing to a 529 plan. Again, there may be other conditions.
__________________
RE2Boys is offline   Reply With Quote
Old 11-25-2015, 07:40 AM   #8
Confused about dryer sheets
 
Join Date: May 2006
Posts: 6
Texas,
We EACH individually paid 15K cash for 30K of bonds each year so 15K invested will mature for almost 60K (as I seem to figure it) at the end of the 30 year Final Maturity leaving us with (each) almost 45K of untaxed income for each of the consecutive years. I do know about the savings bond tax wizard site as far as which ones to cash in on any particular month.

HNZW,
I will look into the taxcaster thing.

Kanoehe,

We already have fair "base" income w/o these bonds and are in 15% bracket but this would push us way up for those maturity years (besides the medicare Part B penality to consider also).

Ya know, I tried to do all the right things by saving for early retirement (long ago) and put away things (tax deferred) knowing that some day this would come but never gave it a thought that I would be forced to pay on ALL these at Final Maturity 30 years later weather I cashed them out or not. I imagined that like an IRA, you would need to take out just so many over what is left of your lifespan, spreading it out over a longer period of years and pay the tax on the bonds when you chose to cash them.

What about when cashing them and putting the funds in a ROTH. Or would that be like a double tax that particular year (tax on cashing and tax (upfront) when doing the ROTH).

Thanks for the responses.
__________________
Dovetonsils is offline   Reply With Quote
Old 11-25-2015, 07:43 AM   #9
Confused about dryer sheets
 
Join Date: May 2006
Posts: 6
OH and no kids or grandkids so that is not an option.

I know nothing about Medicare (but will find out when I go in it next year). It is that the paper just mentioned that it could bump up your premium of part B.
__________________
Dovetonsils is offline   Reply With Quote
Old 11-25-2015, 07:46 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Apr 2011
Posts: 1,558
Quote:
Originally Posted by Dovetonsils View Post
Not been around her for a while (since I am enjoying retirement).

My question is about what to do NOW with the mass of EE savings bonds that my (now) wife and I accumulated a while back that will start being fully matured starting in about 4 years. We were both single at the time of the initial purchases and each bought 15K of them each year since we had no sort of 401K plan back then and looked to bonds for tax deference.

I never really gave much thought to them and thought I could cash them in whenever I wanted to (after 30 years maturity) but just read something in our local paper that said "You MUST pay Fed income tax on bonds in the year of FINAL Maturity.... Even if you DONT cash them in". "Cashing in a lot of bonds in one year (or being forced to pay taxes on final maturity in mass in my case) could result in enough untaxed interest income to put us in a much higher tax bracket or pay more for Medicare Part B" (which we will be starting to do Medicare next year when we both hit 65.
Maybe this has been covered, but I'd think you have to weigh in the fact that if you don't cash them that you'll be sitting on non-income generating assets.
__________________
gerntz is offline   Reply With Quote
Old 11-25-2015, 07:51 AM   #11
Confused about dryer sheets
 
Join Date: May 2006
Posts: 6
I am aware that they quit earning after Final Maturity.

Dont know what ACA? IRMAA? is.

Like my ID says, I am confused about dryer sheets.
__________________
Dovetonsils is offline   Reply With Quote
Old 11-25-2015, 08:27 AM   #12
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,928
Quote:
Originally Posted by Dovetonsils View Post
.....................................

What about when cashing them and putting the funds in a ROTH. Or would that be like a double tax that particular year (tax on cashing and tax (upfront) when doing the ROTH).

.
I don't think you can convert EE bonds into a Roth. IRMAA = income related Medicare adjustment amount.......when you pay more for Medicare B due to high income. The first increase is at 170K
MAGI for married folks = AGI + Tax Exempt Interest Income
__________________
kaneohe is offline   Reply With Quote
Old 11-25-2015, 08:31 AM   #13
Thinks s/he gets paid by the post
 
Join Date: Jul 2002
Posts: 1,038
Establish a Donor Advised Fund account so that you fund it with the savings bond interest and thus take large charitable tax deductions in those specific years. Then use the DAF for all of your charitable giving for many years in the future....possibly cover charitable giving for the rest of your life!

Fidelity, Vanguard, TRowePrice all offer these funds. See for more details on how they work:
http://www.fidelitycharitable.org/
__________________
RE2Boys is offline   Reply With Quote
Old 11-25-2015, 03:28 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,424
I would try to do an analysis of your projected taxable income for the next 10 years assuming your are not preemptive and see what your tax bracket is and how deep you are into it. Then adjust for possibly doing some early redemptions to the top of a certain tax bracket to see if it can make much of a difference in your tax burden.

If spreading it out over 8 years doesn't make much of a difference then I would just suck it up and take advantage of the attractive rates as long as you can.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Interest date meaning?
Old 11-25-2015, 04:07 PM   #15
Dryer sheet aficionado
 
Join Date: Jun 2015
Location: Plantsville
Posts: 27
Interest date meaning?

Well this thread caught my attention. Looking at my Savings Bond Wizard results, I do have a small amount of bonds expiring each of the next 5 years.

I could not find this answer googling so I will ask the experts. If the next interest date states 12/2015, what is the actual date? I assume that I could cash my bonds the day after this date?
__________________
Greathusky74 is offline   Reply With Quote
Old 11-25-2015, 04:27 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,362
It's not clear to me how many different bond-purchase-years you have. If 5 then you can halve the annual interest hit by spreading redemption over the next 10 years. Perhaps even that much will push you into a higher bracket. You need to do some modeling to know for sure.
__________________
GrayHare is offline   Reply With Quote
Old 11-25-2015, 07:15 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,928
Quote:
Originally Posted by Greathusky74 View Post
Well this thread caught my attention. Looking at my Savings Bond Wizard results, I do have a small amount of bonds expiring each of the next 5 years.

I could not find this answer googling so I will ask the experts. If the next interest date states 12/2015, what is the actual date? I assume that I could cash my bonds the day after this date?
at least for older EE bonds, the 1st of the month.....you might be able to cash on that date but it might be wise to make sure the interest has received its 6 month increment to be sure (check interest sometime before and then on the 1st) https://www.treasurydirect.gov/indiv...aseinvalue.htm
__________________

__________________
kaneohe is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
After tax savings or pre-tax savings jIMOh Young Dreamers 13 08-08-2014 11:27 PM
ARS MASS MUNI BONDS-advice needed davids FIRE and Money 1 03-26-2009 07:54 PM
Looking for suggestions on cashing in EE bonds GladToBeFree FIRE and Money 5 10-08-2007 07:42 AM
"In fact, the mass exodus in equities..." Why I don't listen to the mass media dex FIRE and Money 15 02-28-2007 08:28 AM
Implications of Mass. Health Insurance Law TromboneAl FIRE and Money 95 04-12-2006 03:31 PM

 

 
All times are GMT -6. The time now is 04:22 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.