Originally Posted by N02L84ER
I have never owned any bonds that were not part of a bond fund, but my MIL does. She purchased 2 EE bonds in 1986 that stop earning interest later this year. If she postpones cashing one or both of them in until January of 2017 and forgoes the potential to earn a couple of months worth of interest, will the original 30 years of earnings be taxable in 2016 or 2017?
No, she will owe it all in 2016. I read the rules about this before. You can't delay accepting the money in order to delay the taxes after they have matured.
As an example of how to minimize taxes in such a situation, I have I-bonds coming due in 2031 that earn anywhere from 3% to 3.4% real. So I don't want to cash them in early if I can avoid that. All the taxes are deferred until they are cashed in. But I also don't want to push myself into the 25% tax bracket.
In order to keep myself in the 15% bracket, I will probably cash some in December, 2029 then cash another batch in December, 2030 and let the rest mature in 2031. I will try to hit the top of the 15% bracket in 2030 and 2031.