Cash in Savings Bonds?

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ForeverInvestorILL
Posts: 94
Joined: Mon Feb 29, 2016 11:48 pm

Cash in Savings Bonds?

Post by ForeverInvestorILL » Fri Jul 08, 2016 3:52 pm

I have a question for my fellow Bogleheads. My parents just revealed to me (after I walked across the stage and received my college diploma) that they purchased savings bonds for me when I was born (22 years ago). I did a little research and found out that the bonds are currently worth about $3,500 and they are all earning an interest rate of 4% per year and are set to mature in 8 years.

Would you recommend cashing them in now (any insight on their tax treatment would be beneficial as well) or hanging on to them for another 8 years and cashing them in when they are worth about $5,500 (rough estimate)? I could use the money to contribute to an IRA, pad my emergency fund, save for future rent payments, etc.

I will be in 15% tax bracket this year and then will be in the 25% next year if that has an impact on your response.

Thanks and have a great weekend!

August
Posts: 66
Joined: Wed Dec 04, 2013 9:03 pm

Re: Cash in Savings Bonds?

Post by August » Fri Jul 08, 2016 4:23 pm

I'd hold on to them. You probably aren't going to find 4 percent risk free yield anywhere else right now. You can certainly still consider them as part of your emergency fund as you can cash them in at any time if you need them.
Unless your parents have been paying taxes on the interest every year, you will owe federal taxes on all the interest in the year you cash them in. No state taxes will be owed.

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dodecahedron
Posts: 3626
Joined: Tue Nov 12, 2013 12:28 pm

Re: Cash in Savings Bonds?

Post by dodecahedron » Fri Jul 08, 2016 4:30 pm

Even if you don't cash them in this year, you have the option to report and pay taxes on the interest accrued through 12/16 on your 2016 tax return. Then each year after that you report and pay taxes on the interest that accrues each year until you cash them in in 8 years. It's a little bit of bookkeeping and paperwork but you would save some taxes.

More information in a post from a similar thread yesterday:

viewtopic.php?f=1&t=194785&p=2968639#p2968639

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