$12,000 in Bonds from Grandparents and need help!

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Topic Author
bg5
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Joined: Mon Jan 15, 2018 11:07 am

$12,000 in Bonds from Grandparents and need help!

Post by bg5 » Wed May 15, 2019 11:04 am

Hello,

Just found out that I have around $12,000 in bonds and probably 90% of them are fully matured. The remaining 10% mature in the next year or two but most are earning 4% interest.

Quick Background on myself and my wife

Ages - 38 and 34


Retirement Accounts

403Bs Combined = $150,000
Roth IRA's combined = $50,000

The question I have is I was planning on using this $12,000 for our 2020 Roth IRA (but in reality can fund it without using the bonds when the time comes) and was wondering is it stupid to put this money into a fund like VTSAX in a traditional IRA and put it to work instead of just letting it sit there with no chance of making money. If I did make cash then I would sell and put that money back into my Roth knowing that I would have to pay taxes. I also understand that the market is all over the place and it could easily lose value. In the case it lost money I would just fund the 2020 Roth with different cash saved. If I am lucky enough to make some money I could sell and invest that money back into the Roth IRA.

Is this just plane stupid ????? So basically should I let money sit and do nothing or put it to work knowing that I will sell when I make a little profit and put that cash into a roth when the time comes?

tampaite
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Re: $12,000 in Bonds from Grandparents and need help!

Post by tampaite » Wed May 15, 2019 11:09 am

Deleting my messages on this forum
Last edited by tampaite on Mon Jun 03, 2019 7:21 am, edited 1 time in total.

Topic Author
bg5
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Re: $12,000 in Bonds from Grandparents and need help!

Post by bg5 » Wed May 15, 2019 11:31 am

Sadly, both grandparents are dead :(

dbr
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Re: $12,000 in Bonds from Grandparents and need help!

Post by dbr » Wed May 15, 2019 11:35 am

That money is just part of all the money and investments you have. It should be invested along with everything else according to whatever plan you have.

Topic Author
bg5
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Re: $12,000 in Bonds from Grandparents and need help!

Post by bg5 » Wed May 15, 2019 11:41 am

Perfect....but is it stupid to place it into a traditional IRA to make gains and then eventually sold to place in Roth IRA if I ever need to ?????

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RickBoglehead
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Re: $12,000 in Bonds from Grandparents and need help!

Post by RickBoglehead » Wed May 15, 2019 11:47 am

Not real clear what you're asking. Your level of income is one of the factors in determining whether you want a traditional IRA for the tax savings up front, or ROTH IRA because you think you'll be equal or higher later on.

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Re: $12,000 in Bonds from Grandparents and need help!

Post by MotoTrojan » Wed May 15, 2019 11:47 am

:D
bg5 wrote:
Wed May 15, 2019 11:41 am
Perfect....but is it stupid to place it into a traditional IRA to make gains and then eventually sold to place in Roth IRA if I ever need to ?????
I’m confused as to how you can put this into a tIRA now but not a Roth. Could you clarify? The limits of for total between the two of them. If you’re eligible for a deductible tIRA you should also be Roth eligible. If you are not Roth eligible you can’t get a tIRA deduction but could use it for a Backdoor Roth if you have no other tIRA assets.

To simplify, you cannot personally contribute $6K to both a tIRA and a Roth.

You could invest it in VTSAX in taxable and then move to Roth. If it’s a gain, so what you made money. If it’s aloas you get to tax loss harvest (just buy something different like VFIAX). But a 4% bond return is extremely high right now so I’d just back off on any other bond holdings personally and count it towards my AA until maturity.

cas
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Re: $12,000 in Bonds from Grandparents and need help!

Post by cas » Wed May 15, 2019 11:56 am

bg5 wrote:
Wed May 15, 2019 11:04 am
Just found out that I have around $12,000 in bonds and probably 90% of them are fully matured. The remaining 10% mature in the next year or two but most are earning 4% interest.
What kind of bonds are these? From the description, they sound suspiciously like they might be EE Savings Bonds, originally issued in the late 1980s/early 1990s (around the time you were in elementary school?)
Is this just plane stupid ????? So basically should I let money sit and do nothing or put it to work knowing that I will sell when I make a little profit and put that cash into a roth when the time comes?
I don't know. You didn't supply information like whether you have an emergency fund, what your desired asset allocation is, your current tax situation, etc.

*IF* these are those EE Savings Bonds from the late 1980s/early 1990s...
  • For an emergency fund, it is currently about impossible to beat a 4% interest rate on a completely liquid, US Treasury-backed asset.
  • On the other hand, *if* these are EE Savings Bonds, the ones that have already reached final maturity aren't earning any interest at all. No point in not redeeming them and redeploying the assets, even if it is just to a high-yield savings account.
  • It is unclear what the "$12,000" value is ... actual redeemable value that you looked up on treasurydirect.com?
    face value? purchase price? Was the interest reported annually on your taxes or deferred until final maturity? Depending exactly what you meant, those late 1980s/early 1990s EE Savings Bonds can have quite a deferred taxation tax hit in the year they mature. Could have unintended consequences, like causing some people with a certain level of income to phase out of being eligible to make direct Roth IRA contributions.
  • Taxes are due on the tax-deferred interest in the year the EE Savings Bond matures, *even if* the EE bonds are not actually redeemed in that year. *If* these are EE Savings Bonds, have you already properly reported and paid taxes on the matured (but as-yet unredeemed?) bonds in the proper year? Since you say you just found out about them, I'm guessing not...
Or maybe this is all irrelevant because they are some other sort of bond.

Topic Author
bg5
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Re: $12,000 in Bonds from Grandparents and need help!

Post by bg5 » Wed May 15, 2019 12:07 pm

cas wrote:
Wed May 15, 2019 11:56 am
bg5 wrote:
Wed May 15, 2019 11:04 am
Just found out that I have around $12,000 in bonds and probably 90% of them are fully matured. The remaining 10% mature in the next year or two but most are earning 4% interest.
What kind of bonds are these? From the description, they sound suspiciously like they might be EE Savings Bonds, originally issued in the late 1980s/early 1990s (around the time you were in elementary school?)
Is this just plane stupid ????? So basically should I let money sit and do nothing or put it to work knowing that I will sell when I make a little profit and put that cash into a roth when the time comes?
I don't know. You didn't supply information like whether you have an emergency fund, what your desired asset allocation is, your current tax situation, etc.

*IF* these are those EE Savings Bonds from the late 1980s/early 1990s...
  • For an emergency fund, it is currently about impossible to beat a 4% interest rate on a completely liquid, US Treasury-backed asset.
  • On the other hand, *if* these are EE Savings Bonds, the ones that have already reached final maturity aren't earning any interest at all. No point in not redeeming them and redeploying the assets, even if it is just to a high-yield savings account.
  • It is unclear what the "$12,000" value is ... actual redeemable value that you looked up on treasurydirect.com?
    face value? purchase price? Was the interest reported annually on your taxes or deferred until final maturity? Depending exactly what you meant, those late 1980s/early 1990s EE Savings Bonds can have quite a deferred taxation tax hit in the year they mature. Could have unintended consequences, like causing some people with a certain level of income to phase out of being eligible to make direct Roth IRA contributions.
  • Taxes are due on the tax-deferred interest in the year the EE Savings Bond matures, *even if* the EE bonds are not actually redeemed in that year. *If* these are EE Savings Bonds, have you already properly reported and paid taxes on the matured (but as-yet unredeemed?) bonds in the proper year? Since you say you just found out about them, I'm guessing not...
Or maybe this is all irrelevant because they are some other sort of bond.


Yes, these are indeed EE Savings bonds that my grandparents bought for me when I was young and I just found out about them. When I looked them up on treasurydirect.com the current value is $11,650 and if I wait another year they will all be fully matured at about $12,000.

I have never claimed anything on taxes as I just found out about them a week ago.

My wife and I make a combined income of $140,000. We currently have $20,000 in savings and have $200,000 in 403Bs and Roth IRA's



So it looks like I am totally showing the forum I have no idea about lots of things:) What I meant to say is would it be ok to purchase stock, mutual funds etc. in a vanguard brokerage account and let them earn money and we could use this money down the road to fund our Roth IRA if needed. We understand we would have to pay taxes on any gains from our brokerage account. In a perfect world we could keep this money in the brokerage account and never touch it but could use it as a backup plan to fund Roth IRA's if money ever becomes tight.

dbr
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Re: $12,000 in Bonds from Grandparents and need help!

Post by dbr » Wed May 15, 2019 12:15 pm

Some people would say $20k is a little small for an emergency fund. You could just place the $12k with the $20k you have.

If you have a plan to fund Roth IRAs then using this money now to do that could make sense. I am sure why this is down the road.

Once tax deferred opportunities have been realized and you have an adequate emergency fund investing in tax efficient stock funds in a taxable account is a reasonable alternative.

Keep in mind that if you hold this extra $12k in cash you can make up for the conservative character of this by investing more aggressively in the 403 and Roth accounts. Asset allocation should be a plan considering all assets, including what is in the emergency fund. That is probably what I would do. Note this does not actually change the riskiness of what you have as cash and E bonds are same risk.

Jack FFR1846
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Re: $12,000 in Bonds from Grandparents and need help!

Post by Jack FFR1846 » Wed May 15, 2019 12:22 pm

Cash them and put the money into your emergency fund. The amount you presently have is way too low.
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Lee_WSP
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Re: $12,000 in Bonds from Grandparents and need help!

Post by Lee_WSP » Wed May 15, 2019 3:56 pm

bg5 wrote:
Wed May 15, 2019 12:07 pm
Yes, these are indeed EE Savings bonds that my grandparents bought for me when I was young and I just found out about them. When I looked them up on treasurydirect.com the current value is $11,650 and if I wait another year they will all be fully matured at about $12,000.

I have never claimed anything on taxes as I just found out about them a week ago.

My wife and I make a combined income of $140,000. We currently have $20,000 in savings and have $200,000 in 403Bs and Roth IRA's



So it looks like I am totally showing the forum I have no idea about lots of things:) What I meant to say is would it be ok to purchase stock, mutual funds etc. in a vanguard brokerage account and let them earn money and we could use this money down the road to fund our Roth IRA if needed. We understand we would have to pay taxes on any gains from our brokerage account. In a perfect world we could keep this money in the brokerage account and never touch it but could use it as a backup plan to fund Roth IRA's if money ever becomes tight.
Here's the thing with tax deferred retirement vehicles: if you don't use them during the tax year they're available, you lose that contribution forever. Just keep that in mind whatever decision you make.

You're looking at an effective yield of 3% on those bonds. It's certainly not bad and if you let it mature, it wouldn't be the worst decision. You can treat them like an emergency fund. They're fairly liquid.

You may also want to double check on any possible tax liabilities from sale/maturity of the bonds.

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