Cashing in Savings Bonds

[FiveDriver]

DW has some EE Bonds that she wants to cash and deposit with Fidelity SPAXX for now, then maybe buy CD's soon. These were gifted to her back in the early 1990's and are no longer paying interest. The total amount is a couple thousand bucks.

Is this going to be a taxable event for 2023 year ??

What kind of paperwork will the Cashier send to IRS ?

Thanks for any info....

 

[Montecfo]

Cash in at your local bank. Taxable in year cashed.

 

[FiveDriver]

Cash in at your local bank. Taxable in year cashed.

Yes. We'll deposit them in local bank and EFT into Fido.
What kind of paperwork will my local TD Bank send to IRS ??

I had used Series EE Bonds to help fund Daughter's College. They were Income Tax Exempt when cashed.
Any way to play that gambit in the current case ?

 

[CardsFan]

Cash in at your local bank. Taxable in year cashed.

^^^This.

My local bank made it very easy. Actually only had to sign one of the 20 bonds I cashed.

The bank will give you a statement showing interest paid. You will also get a 1099 from Uncle Sam next February, or so.

 

[Gryphon]

You'll have to pay federal income tax on the interest, but not state or local taxes.

https://www.treasurydirect.gov/savings-bonds/tax-information-ee-i-bonds/

I can't remember whether I received a 1099-G or not; all my EE bonds were cashed in so long ago that any 1099-Gs I did receive have been tossed.

You should also be prepared to be there a while. Both times I cashed in EE bonds at my bank they had to figure the interest for each bond individually, probably took 20-30 minutes to go through them all.

 

[Qs Laptop]

DW has some EE Bonds that she wants to cash and deposit with Fidelity SPAXX for now, then maybe buy CD's soon. These were gifted to her back in the early 1990's and are no longer paying interest. The total amount is a couple thousand bucks.



Is this going to be a taxable event for 2023 year ??



What kind of paperwork will the Cashier send to IRS ?



Thanks for any info....

I just went through this a couple of years ago. The bonds were physical paper certificates. I could not simply take them to a bank to cash them in. Instead, I had to mail them in to a US Treasury bond redemption center. (Maybe because they were very old, I'm not sure.) Before mailing them in I laid them out on a table and took photos of them. I also created an Excel spreadsheet with the bond serial numbers and face values.

This will be a taxable event this year. I can't comment on what kind of paperwork will be sent to the IRS. I don't think I received any statement from the government regarding interest paid, but I could be mistaken.

I can say for certain when cashing electronic US savings bonds on the Treasury bond website you DO NOT receive a 1099 mailed nor emailed showing taxable interest earned. You are expected to remember to log into the site months later and download the 1099 yourself. Repeat, you will not receive a statement from the government for interest earned on redeemed electronic US savings bonds. You must obtain the 1099 yourself.

 

[FiveDriver]

I just went through this a couple of years ago. The bonds were physical paper certificates. I could not simply take them to a bank to cash them in. Instead, I had to mail them in to a US Treasury bond redemption center. (Maybe because they were very old, I'm not sure.) Before mailing them in I laid them out on a table and took photos of them. I also created an Excel spreadsheet with the bond serial numbers and face values.

This will be a taxable event this year. I can't comment on what kind of paperwork will be sent to the IRS. I don't think I received any statement from the government regarding interest paid, but I could be mistaken.

I can say for certain when cashing electronic US savings bonds on the Treasury bond website you DO NOT receive a 1099 mailed nor emailed showing taxable interest earned. You are expected to remember to log into the site months later and download the 1099 yourself. Repeat, you will not receive a statement from the government for interest earned on redeemed electronic US savings bonds. You must obtain the 1099 yourself.

Thanks for the response.
I will note that we should photo and track these Bonds before we bring them to the local bank. I hesitate to put anything in the US Mail these days.

Our plan was to 'deposit' the proceeds with TD Bank. And then transfer over to Fido. We did it that way back when I cashed in the EE Bonds for DD's College Expenses. And I was hoping to do the same this week.

I'll post how this whole thing works out.

 

[GrayHare]

EE bond interest is subject to tax during the year the bonds reach final maturity, which is 30 years after purchase.. For example, an EE bond purchased in 1992 reached final maturity in 2022. If it is redeemed in 2023. but you did not report the interest with your 2022 tax return, you need to file an amended 2022 return, and then include a message within your year 2023 return that the reporting was done in tax year 2022. Assuming you have not reported EE bond interest annually, if you redeem EE bonds 1) before or during the year of final maturity, or 2) more than 3 years after that maturity only then do you report the interest income with the tax return for the year you redeemed the bonds. This info comes from the book Savings Bond Advisor by Tom Adams.

 

[lucky penny]

I cashed in an EE bond at my local bank last year & got a 1099-INT to cover the interest (which was a lot!). I was worried it would be complicated, but it was easy-peasy. I reported the interest on Turbotax, which was very good at asking questions that identified it as Savings Bond interest & treated it appropriately.

 

[JoeWras]

EE bond interest is subject to tax during the year the bonds reach final maturity, which is 30 years after purchase.. For example, an EE bond purchased in 1992 reached final maturity in 2022. If it is redeemed in 2023. but you did not report the interest with your 2022 tax return, you need to file an amended 2022 return, and then include a message within your year 2023 return that the reporting was done in tax year 2022. Assuming you have not reported EE bond interest annually, if you redeem EE bonds 1) before or during the year of final maturity, or 2) more than 3 years after that maturity only then do you report the interest income with the tax return for the year you redeemed the bonds. This info comes from the book Savings Bond Advisor by Tom Adams.

OK, I was waiting for this very technically correct post, and here it is.

But... but... Really, does it matter for a few hundred in interest?

We went through this exact scenario last year. DW found a dusty bond from our wedding that matured in 2021, we cashed it in 2022. Should I amend my 2021 return? One that I previously amended, and was waiting for the penalty letter on?

I opted not to. I reported it with our 2022 income. Look, I'm not a tax cheat. I try to play it straight, but some of this can get ridiculous. My 2021 income and 2022 income would both fall in the 22% bracket. I understand why the rules are the rules because people can back-engineer more favorable rates by spreading out redemptions even past maturity.

Since OP's interest will probably be near $1000, I'll leave that to OP and OP's DW to figure out. It still isn't a lot. Maybe if it were $10k or over, I'd think about being technically correct as the IRS may actually ask for more info.

 

[Gryphon]

If the bonds are electronic bonds at Treasury Direct, then you would have to report the interest in the year the bonds matured - electronic bonds are redeemed automatically at maturity & Treasury Direct will issue a 1099 for that year. If you didn't include the interest on your tax return that year, the IRS is eventually going to notice.

For paper bonds that reach their maturity date, you report the interest on your taxes for the year you redeem the bonds - that is the year you received the interest, and is the year it is reported to the IRS.

I would assume that bonds issued in the early 90s are paper bonds, unless you took the trouble to convert them to electronic bonds.

As GreyHare said, this is all assuming that you haven't been reporting the interest as income each year as the bond matures.

 

[JoeWras]

If the bonds are electronic bonds at Treasury Direct, then you would have to report the interest in the year the bonds matured - electronic bonds are redeemed automatically at maturity & Treasury Direct will issue a 1099 for that year. If you didn't include the interest on your tax return that year, the IRS is eventually going to notice.

For paper bonds that reach their maturity date, you report the interest in the year you redeem the bonds - that is the year you received the interest and is the year it is reported to the IRS. I would assume that bonds issued in the early 90s are paper bonds, unless you took the trouble to convert them to electronic bonds.

As GreyHare said, this is all assuming that you haven't been reporting the interest as income each year as the bond matures.

Well, yes, TD automatically redeems. And if you send TD a paper bond that matured in 2021, they will immediately redeem it. The 1099-INT you get has the date 2023 on it.

But very technically, you are still supposed to report it for 2021. Paper or electronic, it doesn't matter.

Of course, this adds all kinds of complications to your 2023 tax form since you would reduce the 1099-INT by the amount you now amended on the 2021.

 

[Gryphon]

But very technically, you are still supposed to report it for 2021. Paper or electronic, it doesn't matter.

IRS-550 agrees with you.

Of course, this adds all kinds of complications to your 2023 tax form since you would reduce the 1099-INT by the amount you now amended on the 2021.

If you redeem bonds that are past their maturity date in the same year you redeem bonds that are before or at maturity, that would indeed be a problem. If you redeem the bonds that are past maturity at a local bank rather than through TD, they would be on a separate 1099 & would make it easier to handle separately. When I redeemed my paper bonds I did it at the credit union where I did most of my local banking, but that was 15-20 years ago; I don't know if that's still possible now.

In a case like yours, where you had an amended return already in the works at the IRS, I would probably have done what you did & not submitted another amended return. But it would probably also depend on what exactly was on the 1099 - if it specifically said the interest income was for the year of maturity I would be reluctant to put that income on a different year's tax return.

 

[Telly]

If the bonds are electronic bonds at Treasury Direct, then you would have to report the interest in the year the bonds matured - electronic bonds are redeemed automatically at maturity & Treasury Direct will issue a 1099 for that year. If you didn't include the interest on your tax return that year, the IRS is eventually going to notice.

For paper bonds that reach their maturity date, you report the interest on your taxes for the year you redeem the bonds - that is the year you received the interest, and is the year it is reported to the IRS.

Right. We have redeemed some of our paper EE bonds the year after they matured. Have done this multiple times over the years. No problem. The 1099-INT that the bank sends us lists the total interest amount for bonds redeemed in that tax year.
Example - have maturity dates in 2021 and 2022, redeemed in 2022. The 2022 1099-INT lists the summation of all bonds redeemed in the 2022 tax year, which includes the 2021 maturity bonds $ interest too. No bond maturity dates appear anywhere on the 1099-INT.

About IRS PUB 550 - Because paper bonds have not been issued since 2012, I think the PUB 550 statement below in Method 1 applies to electronic bonds only. They just left out the paper bond action. I have not found ANY US Gov Savings Bond document that says you have to report interest on redeeming a paper bond in the year that it matures.


From IRS PUB 550:

Accrual method taxpayers. If you use an accrual method of accounting, you must report interest on U.S. savings bonds each year as it accrues. You cannot postpone reporting interest until you receive it or until the bonds mature.

Cash method taxpayers. If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U.S. savings bonds when you receive it. But see Reporting options for cash method taxpayers, later.

Reporting options for cash method taxpayers. If you use the cash method of reporting income, you can report the interest on Series EE, Series E, and Series I bonds in either of the following ways.

1. Method 1. Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year in which they mature. (However, see Savings bonds traded, later.)
Note. Series EE bonds issued in 1992 matured in 2022. If you have used method 1, you generally must report the interest on these bonds on your 2022 return. The last Series E bonds were issued in 1980 and matured in 2010. If you used method 1, you generally should have reported the interest on these bonds on your 2010 return.
2. Method 2. Choose to report the increase in redemption value as interest each year.

 

[vafoodie]

I am reading with great interest. I have finally decided I probably won't be divorcing my husband of 37 years (Lord, don't let this typing jinx me) , so I'm ready to cash in the 20 odd savings bonds I squirreled away during the first 2-3 years we were married. I want to do something fun with this money, investment wise. Fun but not stupid. Any ideas?

 

[JoeWras]

Fun is way open to interpretation.

First thing that comes to mind is throw it into a 2 or 3 yr Note. Not stupid. Very safe, and better than a savings bond for the next few years. The fun part? It will throw off coupon payments every 6 months. Probably enough for you two to have dinner and celebrate reconciliation. If you fall apart again, the Note is easy to liquidate. Just hold it at a brokerage so you can liquidate.

Or you could buy some heavily watched, but relatively safe, stocks like Apple or Microsoft. Fun part: watching them.

Just two random ideas.

 

[Koolau]

Fun is way open to interpretation.

First thing that comes to mind is throw it into a 2 or 3 yr Note. Not stupid. Very safe, and better than a savings bond for the next few years. The fun part? It will throw off coupon payments every 6 months. Probably enough for you two to have dinner and celebrate reconciliation. If you fall apart again, the Note is easy to liquidate. Just hold it at a brokerage so you can liquidate.

Or you could buy some heavily watched, but relatively safe, stocks like Apple or Microsoft. Fun part: watching them.

Just two random ideas.

Or just BTD!