Cashing EE Bonds

[Beststash]

I have $20K of EE paper bonds that I bought 9/1992 (interest rate 4%) which will mature 9/2022. I had always thought that I wouldn't owe taxes on them until I cashed them? But as I was looking at Treasury Direct in regard to I-Bonds I saw a statement regarding them which said "Income tax applies at the federal level, but not the state and local levels. Report interest on your federal return either every year or for the year when the first of these things happens: the bond matures, you cash the bond, or you give up ownership of the bond and it is reissued."

I take that to mean that on 9/2022 when these bonds mature I will owe tax on approx $61312 [total interest] with total value being $81312 (redemption value as of 3/2022).

DW and I both turn 72 this calendar year so this will also be our first year to do a RMD withdrawal - so the combined tax hit is a surprise.

Does this sound correct? TIA

 

[dak2018]

I have $20K of EE paper bonds that I bought 9/1992 (interest rate 4%) which will mature 9/2022. I had always thought that I wouldn't owe taxes on them until I cashed them? But as I was looking at Treasury Direct in regard to I-Bonds I saw a statement regarding them which said "Income tax applies at the federal level, but not the state and local levels. Report interest on your federal return either every year or for the year when the first of these things happens: the bond matures, you cash the bond, or you give up ownership of the bond and it is reissued."

I take that to mean that on 9/2022 when these bonds mature I will owe tax on approx $61312 [total interest] with total value being $81312 (redemption value as of 3/2022).

DW and I both turn 72 this calendar year so this will also be our first year to do a RMD withdrawal - so the combined tax hit is a surprise.

Does this sound correct? TIA

You will pay interest on everything above the purchase price of the bonds - for your paper EE bonds, you purchased them at 50% of the face value - so you will owe taxes on (Redemption value) - .5*(Face Value).

[Unless I am grossly misunderstanding what you are saying...]

 

[Beststash]

Thanks - that's what I thought but it was a surprise. I was not aware that when they reached maturity you incurred the tax liability whether you cashed them or not. I was hoping to be able to cash a few this year and spread the rest our over a couple of years.

Poor tax planning on my part. I've always done my taxes because I haven't had debt in such a long time. In hindsight I should have either paid the taxes as incurred or cashed them out slowly over the last few years. Oh well, this just adds to the financial tailspin I've had so far in 2022.