Series EE savings bonds maturing after 30 years...now what?

[lucky penny]

I have some Series EE savings bonds maturing this year & next. My bank says they will cash them at maturity & deposit the proceeds to my account. After 30 years, the accrued interest is substantial (good!) & so is the taxable gain (ugh).

My questions:

1. Should they be cashed at the start of the month of maturity?

2. Is there any downside to handling this through a bank rather than sending the bonds to Treasury Direct?

3. Will the bank issue the 1099?

4. Can I ask the bank (or Treasury Direct) to withhold some of the proceeds for taxes?

5. Is there any other way to limit the amount of tax owed?

6. On my tax return, is the bond treated like an investment & reported on Schedule D?

[njhowie]

Quote:

Originally Posted by lucky penny 2. Is there any downside to handling this through a bank rather than sending the bonds to Treasury Direct?

You should redeem at your local bank. You will collect the same whether through the bank or Treasury Direct. However, obviously you won't have to pay to send the bonds to Treasury Direct and risk them getting lost or destroyed in transit. Additionally, the bank will give you cash on the spot if you want, or proceeds into the bank account - with Treasury Direct you're going to have to wait for them to receive and process your bonds.

[cranberryjoe]

I sent all my EE bonds to Treasury Direct a few years ago before my bonds started maturing. As I recall it took about 2-3 weeks for the bonds to show up in my TD account.

Now I get an email from TD on the first day of the month when a bond matures, prompting me to login and transfer the cash to my bank. No need to travel to the bank, no forgetting about it. The only thing I don't like about it is that the transfer to my bank is not automatic, but it only takes a few minutes.

TD withholds tax and provides a 1099 (online, not physical, so you have to login to get the 1099).

On your tax return, bond interest is treated like interest from a bank account, taxed at your ordinary income rate.

I can't remember the last time I set foot in my local bank. 5 years maybe? I do all my financial stuff online. It would be mildly inconvenient to make a trip to the bank every month or two to cash in a bond.

[JDARNELL]

I had some that matured in May. Took them to the bank and they redeemed them. The interest will show up on a 1099 issued from the bank. I can use the interest for the 2022 tax year to pay for qualified education expenses for my sons last fall of tuition. So no tax for me.

I also have some I bonds that are paying 10% plus that while I would like to keep I am liquidating them in December after the next accrual so I can get rid of the taxes due to education funding. Of course I am loading up on the I bonds with any excess cash up to the limit this year.

[rk911]

Quote:

Originally Posted by lucky penny I have some Series EE savings bonds maturing this year & next. My bank says they will cash them at maturity & deposit the proceeds to my account. After 30 years, the accrued interest is substantial (good!) & so is the taxable gain (ugh). My questions: 1. Should they be cashed at the start of the month of maturity? 2. Is there any downside to handling this through a bank rather than sending the bonds to Treasury Direct? 3. Will the bank issue the 1099? 4. Can I ask the bank (or Treasury Direct) to withhold some of the proceeds for taxes? 5. Is there any other way to limit the amount of tax owed? 6. On my tax return, is the bond treated like an investment & reported on Schedule D?

1-AFAIK it makes no difference.
2-IMO it's easier, faster and safer than mailing paper bonds.
3-Yes, ours does.
4-Yes, but we don't. we use the IRS Safe Harbor merhod for est. payments.
5-Don't cash them all at once?
6-Interest is treated as ordinary income.

[zinger1457]

Quote:

Originally Posted by rk911 5-Don't cash them all at once?

Once the bonds mature I'm pretty sure you will get a tax bill whether you cash them in or not. One thing I did with some EE bonds I inherited was to start cashing some in early so I could spread the tax hit in a lower tax bracket, if I wait until they mature (next year) I will be in a higher tax bracket. Treasury Direct does make it easy if you just want to cash in a portion of a bond early, you can pretty much select any dollar amount you want.

[DuluthGA]

I cashed in about 25 $200 bonds that were maturing over the past couple of years at my local brick and mortar bank. Young tellers had more trouble so get one that looks experienced as they rarely get paper bonds anymore. After the first few I changed to going in quarterly. You lose a little opportunity cost in holding a month or two past maturity but this was primarily during COVID and I didn’t want to hassle going in the bank monthly.
Cash them in on the first and put that money to work somewhere else.

[lucky penny]

Quote:

Originally Posted by DuluthGA Cash them in on the first and put that money to work somewhere else.

Thanks -- do you mean the first day of the month? Is that when they stop earning interest?

[lucky penny]

Quote:

Originally Posted by zinger1457 Once the bonds mature I'm pretty sure you will get a tax bill whether you cash them in or not. One thing I did with some EE bonds I inherited was to start cashing some in early so I could spread the tax hit in a lower tax bracket, if I wait until they mature (next year) I will be in a higher tax bracket. Treasury Direct does make it easy if you just want to cash in a portion of a bond early, you can pretty much select any dollar amount you want.

One $5000 bond matures in November & the other in February, so at least the interest will be spread over 2 years.

[DuluthGA]

Quote:

Originally Posted by lucky penny Thanks -- do you mean the first day of the month? Is that when they stop earning interest?

Yes. They don’t earn any additional interest once they mature. They mature on the first of the month. Don’t cash in early as you’ll lose a little interest. All mine were earning 4% or more so I held on to them as long as possible

[easysurfer]

Most of my EE bonds are sitting as cash value in my Treasury Direct account that I converted to a few years back. Think I may take the money and run during my annual rebalancing.

30 years ... I feel old

[DuluthGA]

Quote:

Originally Posted by easysurfer 30 years ... I feel old

Yep. I had a teller look at the original date and say “that’s the month i was born”

[rk911]

Quote:

Originally Posted by zinger1457 Once the bonds mature I'm pretty sure you will get a tax bill whether you cash them in or not....

that's not been our experience.

we were buying Series E/EE paper bonds for decades starting in the 70's and ending in 2022. we usually bought at least one bond per month. We've been cashing in those that have matured every January but there have been years where we haven't gotten to that until much later in the year. In those cases we've never received a 1099 prior to redeeming them.

Same thing for my late BIL. when we cleaned out his home we found a stack of Series E paper bonds purchased in the early 70's. no 1099 was issued to him during the years after they matured until his death in 2021.

[harllee]

Quote:

Originally Posted by zinger1457 Once the bonds mature I'm pretty sure you will get a tax bill whether you cash them in or not. One thing I did with some EE bonds I inherited was to start cashing some in early so I could spread the tax hit in a lower tax bracket, if I wait until they mature (next year) I will be in a higher tax bracket. Treasury Direct does make it easy if you just want to cash in a portion of a bond early, you can pretty much select any dollar amount you want.

Not so for paper bonds. I have discovered that my mother has a bunch of EE bonds that matured several years ago and she has never gotten a tax bill for those. I know that these should be cashed in and the tax paid but I have not yet figured out how to accomplish this. I have taken over mother's finances under her Power of Attorney. The local band and credit union tell me that they cannot cash savings bonds with a Power of Attorney. According to my research in order for me to cash them for her at Treasury Direct she will have to sign a special Power of Attorney to me that has to be medallion guaranteed. At this point she is not healthy enough to do this. The bonds may have to remain uncashed until her death when I can cash them in as her Executor.

[rk911]

Quote:

Originally Posted by harllee Not so for paper bonds. I have discovered that my mother has a bunch of EE bonds that matured several years ago and she has never gotten a tax bill for those. I know that these should be cashed in and the tax paid but I have not yet figured out how to accomplish this. I have taken over mother's finances under her Power of Attorney. The local band and credit union tell me that they cannot cash savings bonds with a Power of Attorney. According to my research in order for me to cash them for her at Treasury Direct she will have to sign a special Power of Attorney to me that has to be medallion guaranteed. At this point she is not healthy enough to do this. The bonds may have to remain uncashed until her death when I can cash them in as her Executor.

i'm going thru this exact thing now. my BIL (Tom) passed away in march of '21. he left two stacks of series E bonds...one stack POD to my wife, the other was POD to his brother (Steve) who died in 2003. Tom never changed the POD designation on those bonds. my wife is Tom's successor trustee and I'm the successor trustee for the Steve. we've had to apply to the treasury to have the bonds that were POD to Steve re-issued and then redeemed to my wife. that required treasury form 5336, two copies of both brother's death certs and a cover letter explaining the timeline. everything had to be notarized. we had to include the paper bonds in the package which we overnighted/signature guarantee. a month later treasury notified us of receipt of the package and that it will take up to 13-weeks to get this done.

you're situation is a bit less complicated. you need to either, as you say, wait till she passes but then you'll likely have to emulate what we're going thru. option 2 may be to have them re-titled either to her trust, you or whomever. i think the form 5336 can be used to do that. but that will require a notary. maybe you can find a notary that will come to your mom's home. our banker said he would if need be.

good luck.

[harllee]

rk911, my mother's bonds have matured (after 30 years) and cannot be retitled, they just need to cashed in but I have to figure out how to do that.

[rk911]

Quote:

Originally Posted by harllee rk911, my mother's bonds have matured (after 30 years) and cannot be retitled, they just need to cashed in but I have to figure out how to do that.

yes, they can. Tom's Series E bonds are between 45-50 years old. the way it was explained to me is that the re-title/redeem take place simultaneously. in addition to the items I listed that we had to send to the treasury we also had to give them copies of the relevant pages of both brother's trusts naming Donna and myself as successor trustees as well as photocopies of two forms of Donna's ID. we also had to send in the bonds themselves since they are paper bonds. you'll need to include them with the form and Treasury will redeem them via direct deposit.

I should have been more precise in my first post. if you are the POD then it might be easier to just wait 'till she passes and then just take them to your bank along with a copy of her death certificate. that's what we did with the stack of bonds that were POD to my wife. no muss or fuss. if you're not POD then you may have to emulate what we're going thru with the second stack of bonds...or...can you, her trust, will, etc. be added as a POD on the bonds??

[zinger1457]

My only dealings with bonds have been thru Treasury Direct but even with paper bonds the tax is due in the year they mature, even if not cashed.

https://www.spencerlawfirm.com/2010/...savings-bonds/

Quote:

When a Series EE bond matures, whether or not it is cashed in, the accrued interest is taxable. This is a very important point. It is important to keep careful record of your bond maturity dates – not only because they won’t be earning interest anymore but also because the maturity is a taxable event. When a bond is cashed in, a 1099 is issued by the bank or financial institution to the person who is cashing in the bond. No 1099 is issued when a bond matures and is not cashed. The taxpayer is on his or her own to report the accrued income on his tax return at maturity. Making a mistake on this can result in interest and penalties owed to the IRS.

[rk911]

Quote:

Originally Posted by zinger1457 My only dealings with bonds have been thru Treasury Direct but even with paper bonds the tax is due in the year they mature, even if not cashed. https://www.spencerlawfirm.com/2010/...savings-bonds/

from the US Treasury...apologies for the length. click the link to be taken to the relevant information.

https://www.treasurydirect.gov/indiv...sider.htm#when
__________

When must I report the interest on my tax form?
You have a choice. You can

report the interest every year
put off (defer) reporting the interest until you file a federal income tax return for the year in which the first of these events occurs:
you cash the bond and receive what the bond is worth, including the interest, or
you give up ownership of the bond and the bond is reissued, or
the bonds stops earning interest because it has reached final maturity
Reporting the interest all at once at the end
Most people defer reporting the interest, putting it off until they are filing a federal income tax return for the year in which they receive what the bond is worth including the interest.

When electronic EE Bonds in a TreasuryDirect account stop earning interest, they are automatically cashed and the interest earned is reported to the IRS.

You can see the interest on your IRS Form 1099-INT.

If a financial institution pays the bond, you will receive a paper 1099-INT from that financial institution either soon after you cash your bonds or within the first two months after the end of the year in which you cash your bonds.
If you cash electronic bonds in your TreasuryDirect account, your 1099-INT will be available early the next year in your account. (Video)
Reporting the interest every year
You may, however, choose to report the interest every year.

You may, for example, find it advantageous to report interest every year on savings bonds in a child's name. The child may be paying taxes at a lower rate than will be true years later when the bond matures.

Note: You (or the child if a bond is in the child's name) do not actually receive the interest every year even if you report it that way. The interest that the bond earns is reported on a 1099-INT after the bond is cashed or is reissued to reflect a taxable change in ownership. The 1099-INT will show all the interest the bond has earned over the years. Go to IRS Publication 550, Investment Income and Expenses, for instructions on how to tell the IRS that you already reported some or all of that interest in earlier years.

Once you start to report the interest every year (for example, for a child in the child's Social Security Number), you must continue to do so every year after that. for all your savings bonds (or, for example, all the child's bonds) and any you acquire (or, the child acquires) in the future.

Our online Savings Bond Calculator can help you determine the year-to-date earnings for the calendar year.

How do I report the interest?
Whether you are reporting interest at the end of the bond's life or every year, you report the interest from your bonds on your federal income tax return on the same line with other interest income.

If you are reporting the interest on bonds another person owns (for example, the interest on your child's bonds), you report that on the other person's federal income tax return with other interest income that person has earned.

Even if you’ve chosen to report interest every year, the 1099-INT that is reported after the bond is cashed will show all the interest earned from the date of issue. See instructions in IRS Publication 550 on how to report interest in this situation on your federal income tax return.

[rodi]

Quote:

Originally Posted by harllee Not so for paper bonds. I have discovered that my mother has a bunch of EE bonds that matured several years ago and she has never gotten a tax bill for those. I know that these should be cashed in and the tax paid but I have not yet figured out how to accomplish this. I have taken over mother's finances under her Power of Attorney. The local band and credit union tell me that they cannot cash savings bonds with a Power of Attorney. According to my research in order for me to cash them for her at Treasury Direct she will have to sign a special Power of Attorney to me that has to be medallion guaranteed. At this point she is not healthy enough to do this. The bonds may have to remain uncashed until her death when I can cash them in as her Executor.

My husband just went through this with my MIL. He's guardian of money (BIL is guardian of person). MIL had many paper bonds that were no longer earning interest. He spent two years trying to get someone at treasury direct to acknowledge they'd received 1) the wet signed conservatorship paperwork, 2) the proper forms, 3) admission he existed.

He had certified mail receipts showing he'd sent them the paper work. He finally called our congressional rep's office, since dealing with the Treasury is a federal government department.

Within a week of talking to the the congressman's office he had a 'supervisor' on the phone who had 'found' the paperwork and was expediting things. He still had to get a medallion signature - which required opening an account at a bank with medallion and waiting 2 months. (That was the bank's requirement to become a medallion qualified customer.) He had kept the supervisors name and contact and called her when he was sending in the medallion'd form so it could go to her attention.

In other words... if all else fails, get your congressional rep or one of your senators offices involved. But you'll still need a medallion.

On the tax issue - this created a big-ish taxable event for MIL. He will be cashing out bonds as they mature going forward.

Since these were paper bonds - no 1099 issued - but presumably he'll get one in Jan 2023. MIL did not claim taxes on the interest when they matured... but they started maturing about the time her dementia started showing. Ironically, one of the signs we had that she had issues was on filling out her taxes for the last bond she cashed. Despite having worked for the IRS, having super simple taxes, she was spinning her wheels trying to figure out how to report the interest. She'd gone 3 nights without sleep spinning her wheels on this. I ended up taking her paperwork and running it through turbo tax, printing it out, and giving it to her to review and sign. It was another few years before hubby was named guardian, and a few years after that before he started tackling the giant stack of paper bonds - starting a multi year journey with Treasury.

I'm hoping to talk him into converting *all* the bonds to electronic bonds this coming year.