Should I redeem older E Bonds?

[mystang52]

I have a respectable amount of I and EE US Bonds, both the old paper ones (which I converted to electronic) and electronic. Of those newer ones are EE Bonds with an aggregate $1300 EE redemption value from 900 initial cost, some currently earning 1.6%, others 2.99%. We're not talking big bucks here, and there would be a small tax hit, but come January I can buy more Bonds. Is it worth it to redeem these EE Bonds and replace it with I Bonds?
I'm fairly good at numbers but I get dizzy trying to figure out if this is worth doing so, and I know we have much smarter folks than I on this site.

BONUS QUESTION: Percentages are more significant (therefore bigger tax hit) on my converted Bonds: about $10,000 redemption value vs $5000 cost. Is the answer different for these?

 

[JoeWras]

I have a respectable amount of I and EE US Bonds, both the old paper ones (which I converted to electronic) and electronic. Of those newer ones are EE Bonds with an aggregate $1300 EE redemption value from 900 initial cost, some currently earning 1.6%, others 2.99%. We're not talking big bucks here, and there would be a small tax hit, but come January I can buy more Bonds. Is it worth it to redeem these EE Bonds and replace it with I Bonds?
I'm fairly good at numbers but I get dizzy trying to figure out if this is worth doing so, and I know we have much smarter folks than I on this site.

BONUS QUESTION: Percentages are more significant (therefore bigger tax hit) on my converted Bonds: about $10,000 redemption value vs $5000 cost. Is the answer different for these?

For the bonds at 1.6% to 3%? Yes. You can do better with the i-Bond. If you have them in Treasury Direct (sounds like you do), you can immediately buy a short term T-Bill (4 weeks) on your account making over 4% while waiting for next year's I-Bond window.

Your 2022 tax hit will be about $400 for these, as I understand it. This is likely something you can absorb.

Today or early next week is a good time to do this too since the interest just got applied first of month.

Your other bonds have a bigger tax hit which you should consider. If their interest rates are less than 4%, they are worth considering redeeming. You'll probably want to do this next year so there is no rush. Perhaps you redeem the lowest interest first in order to make enough for your i-bond(s). However, further analysis is required.

Don't buy EE bonds again right now. They are at 2.01%. No good. Next reset is in April.

MY SITUATION:
I have a lot of converted EE bonds from the 90s sitting at 4%. Right now they are maturing monthly and I'm letting them roll off and automatically redeem. If interest rates go higher next year to 6% or so, I'll be redeeming them all and dropping them into a Note or 52wk T-bill since the math works. This is because these bonds are near maturity anyway (within 2 years).

TL/DR: yes, redeem your old bonds below 3% now and put them into an i-Bond, with perhaps a short term T-Bill bridge until next year.

Your other bonds need further analysis we can perhaps help with next year.

 

[mrfeh]

I have a respectable amount of I and EE US Bonds, both the old paper ones (which I converted to electronic) and electronic. Of those newer ones are EE Bonds with an aggregate $1300 EE redemption value from 900 initial cost, some currently earning 1.6%, others 2.99%. We're not talking big bucks here, and there would be a small tax hit, but come January I can buy more Bonds. Is it worth it to redeem these EE Bonds and replace it with I Bonds?

When were they purchased? 20 years is the magic number for EE bonds...

 

[JoeWras]

When were they purchased? 20 years is the magic number for EE bonds...

Good point. I've got old bond bias, i.e. past 20 yrs. in my portfolio.

 

[mystang52]

When were they purchased? 20 years is the magic number for EE bonds...

OP here. Thanks for that reminder. They are all 17-18 years old. At this point, it's worth doing nothing 'til that 20 year mark.

 

[JoeWras]

OP here. Thanks for that reminder. They are all 17-18 years old. At this point, it's worth doing nothing 'til that 20 year mark.

Whew! Good catch by mrfeh. Yes, you are on that important cusp of doubling. Sorry for my earlier half baked thoughts.