What to do with 50K of Savings Bonds?

[AdmiralAdama]

I just received a little birthday present of Savings Bonds my parents and grandparents had gotten for me back in the day.

5 from the Mid 80s
3 from the early 00s

5 EE, 3 I

All of them are at 4% or 4.2% except the 2003 I bond, which is at 3.3

What should I do with these? I was thinking about redeeming all of them, or just the lower-interest I bond, or using the lil windfall as part of my bond allocation and selling some of my bonds in my IRA to buy stocks to balance it back out....

Thoughts?

[mickcris]

I would keep the ee bonds until they stop earning interest (30 years) and then cash them in. I would also keep the ibonds as you cannot find anything else similar offering that high of an interest rate right now.

[Johm221122]

How close are mid80's bonds to 30 years old?
John

[AdmiralAdama]

mid 80s bonds will mature in 2016

[Johm221122]

mid 80s bonds will mature in 2016

Just hold them to they mature, taxes will be do then
John

[Carl53]

The I bond is earning 3.3% plus an inflation adjustment. So it has often been north of 5% total. Keep it, the others too. From your earlier posts it appears that you may be bumped into the 28% bracket when you cash some in in 2016. In that year hopefully you can bump up other tax deferral items such as 401k contributions to minimize the extra 3% income tax hit (plus whatever California will do to you). There might be some tiny advantage to cashing in one or two of the 80s bonds a year early to stay in the top of the 25% bracket if that were possible. If are in the 28% bracket by then, so be it and ride the bonds til the end.

[#Cruncher]

5 EE, 3 I
All of them are at 4% or 4.2% except the 2003 I bond, which is at 3.3

An I Bond purchased in 2003 has a fixed rate of 1.6% if bought before May 1 or 1.1% if bought after that. The only I Bonds with a 3.3% fixed rate were issued November 1998 - October 1999. No I Bonds were ever issued with a fixed rate over 3.6%. See TreasuryDirect I Bond Fixed Rates to check again just what you've got.

In today's low interest rate environment any I Bond is worth holding on to. Ones with fixed rates north of 1% are treasures. If you sell real bonds issued with interest rates higher than current rates, you capture the increased value in the selling price. But this isn't the case with I Bonds. You forsake the higher-than-market interest rate over their remaining life, but get no compensating proceeds in the selling price.

[Dandy]

You have bonds paying 4% and 3+% that are not subject to state tax and guaranteed by Uncle Sam with no early withdrawal penalty (although it will trigger tax when cashed in. With interest rates so low many of us fret a bit about bond funds taking a hit if/when interest rates rise. These bonds will tend of offset any temp drop in bond fund values. Why would you even think of cashing them in unless to pay off a very high interest loan? Keep them until they mature unless other safe interest rates exceed those rates by a bit. You can adjust your bond holding if you wish but I wouldn't incur any taxable transactions to do so.

I have some EE and HH bonds (paying 1.5%) that I recently inherited and plan to keep them and they are included in my fixed income allocation (I consider them cash rather than bonds since they don't lose money and are very liquid). I would be hard pressed to find a taxable safe investment e.g. CDs that exceed even the 1.5% after tax return of the HH. Although rising CD rates a Pen Fed are becoming tempting.

[Grt2bOutdoors]

Do you have a pressing need for the money? If not, do not cash these bonds in until maturity.
As everyone else has posted, you will not find yields like these anywhere today. Thank your parents and grandparents for your good fortune.

[Peter Foley]

I too inherited bonds of this vintage. With current interest rates I'm holding the EE bonds until maturity. I'm not sure what your personal situation is, but I think I-bonds can be used tax free for certain educational expenses. (I'm unsure of the exact rules.) If you have kids approaching college, that would be a good use.

[Watty]

I too inherited bonds of this vintage. With current interest rates I'm holding the EE bonds until maturity. I'm not sure what your personal situation is, but I think I-bonds can be used tax free for certain educational expenses. (I'm unsure of the exact rules.) If you have kids approaching college, that would be a good use.

+1 on the college educational advantages.

[Dr. Market]

I too inherited bonds of this vintage. With current interest rates I'm holding the EE bonds until maturity. I'm not sure what your personal situation is, but I think I-bonds can be used tax free for certain educational expenses. (I'm unsure of the exact rules.) If you have kids approaching college, that would be a good use.

+1 on the college educational advantages.

Please note that savings bonds issued before 1990 cannot be used in a tax-advantaged fashion for education expenses. Also, the later bonds would have to have been purchased in your name when you were 24 or older. Income limits also apply.

I agree that you should most likely hold onto the bonds and, if you need to sell part, to sell the EE bonds first.

[Epsilon Delta]

... (plus whatever California will do to you). ....

I and EE bonds, like all treasury bonds, are state tax free.

[davetopia]

Buy a Battlestar.

[BrandonBogle]

Buy a Battlestar.

And here I was watching the Pegasus be sacrificed tonight.

[BenBritt]

Hold those bonds to maturity and consider yourself blessed.

[BenBritt]

Hold those bonds to maturity and consider yourself blessed.

[EyeYield]

mid 80s bonds will mature in 2016

Agree with everyone else, wait until final maturity.
Hopefully they won't all mature in the same year, so you can spread out the taxes you'll have to pay on the interest.
Actually, I don't think maturity has anything to do with it, as long as you don't cash them in, you won't have to pay the taxes.
Depending on your tax situation, of course.

[neurosphere]

Actually, I don't think maturity has anything to do with it, as long as you don't cash them in, you won't have to pay the taxes.
Depending on your tax situation, of course.

To clarify, taxes on savings bonds are due the year the bonds reach final maturity, regardless of when you choose to cash them in. That is, you can't cherry-pick the year you want to pay the taxes. You either pay every year along the way, OR pay in the year you cash them in vs the year they mature (whichever comes first).

NS

[SSSS]

To clarify, taxes on savings bonds are due the year the bonds reach final maturity, regardless of when you choose to cash them in.

This is true. Fun prank: buy savings bonds for people, don't tell them, wait 30 years, and laugh when the IRS audits them.

[Johm221122]

To clarify, taxes on savings bonds are due the year the bonds reach final maturity, regardless of when you choose to cash them in.

This is true. Fun prank: buy savings bonds for people, don't tell them, wait 30 years, and laugh when the IRS audits them.

I thought there millions of dollars worth that matured and were never claimed? Or billions according to ABC
http://abcnews.go.com/Business/unclaime ... d=13841871
John
Edit, does irs let you know?

[EyeYield]

Actually, I don't think maturity has anything to do with it, as long as you don't cash them in, you won't have to pay the taxes.
Depending on your tax situation, of course.

To clarify, taxes on savings bonds are due the year the bonds reach final maturity, regardless of when you choose to cash them in. That is, you can't cherry-pick the year you want to pay the taxes. You either pay every year along the way, OR pay in the year you cash them in vs the year they mature (whichever comes first).

NS

Thanks for the clarification, I was unsure about that. I bought bonds on a monthly basis for over a decade and they will hit final maturity in 2016 and run through 2027- if I make it. Actually, I foolishly cashed some in a few years ago that would have reached final maturity next month.

[Default User BR]

Hopefully they won't all mature in the same year, so you can spread out the taxes you'll have to pay on the interest.
Actually, I don't think maturity has anything to do with it, as long as you don't cash them in, you won't have to pay the taxes.
Depending on your tax situation, of course.

Legally, the tax due when they reach final maturity. I have no idea what the situation is for people who don't do that in a timely manner.


Brian