I have 4 EE Bonds issued 10/2003, each reaches face value in 2023, 20yrs. Final maturity is 2033, 30yrs, but I don’t plan to hold them that long.
I had planned to begin cashing one each year from 10/2023 thru 10/2026, each for face value plus any additional interest accrued after they reach face value in 10/2023. Wendy posted some info on the METAR board that caught my attention and she suggested I post the question here.
Wendy: Last week, my highly-respected friend, aj485, told me that I was mistaken. The rule (which I was not aware of) says that, upon maturity of savings bonds, the government will pay all interest in a lump sum. There is no option for the owner to hold the bonds after maturity (without accruing further interest) and gradually pay out the interest that had accrued from prior years. Furthermore, all the bonds must be treated the same – if interest on one is paid, they must all be paid at once and then continue to be paid every year.
I have read that at final maturity, in 30 years when interest stops and must be reported to the IRS, the income tax on the interest must be paid. I am hoping that Wendy’s description does not apply to bonds that have reached face value, but not final maturity. I have not read anything that says that.
Before cashing in. EE Bonds , I think, go to Full Face Value after 20 years. There is a free bond calculator to check todays value for any bond you have. At 19 years it may be only 60 to 70% of face value depending on interest rate. At 20 years it will be full face value. If you wait a few extra months you will see the value slowly increase with interest. At 30 years it is fully mature and the value will not increase.
I have read that at final maturity, in 30 years when interest stops and must be reported to the IRS, the income tax on the interest must be paid. I am hoping that Wendy’s description does not apply to bonds that have reached face value, but not final maturity. I have not read anything that says that.
I will point out that EE bonds reaching face value after 20 years is not the same as reaching maturity, which is after 30 years. Accrued interest from savings bonds becomes fully taxable in the year that the bond reaches maturity, unless you have been reporting the interest each year. Holding the bond beyond maturity doesn’t exempt you from reporting the taxable interest. From IRS Pub 550 https://www.irs.gov/pub/irs-pdf/p550.pdf (with added bolding from me):
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 1990 matured in 2020. If you have used method 1, you generally must report the interest on these bonds on your 2020 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.
You must use the same method for all Series EE, Series E, and Series I bonds you own. If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1.
"2. Method 2. Choose to report the increase in redemption value as interest each year.
You must use the same method for all Series EE, Series E, and Series I bonds you own. If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1.
AJ"
I bought some I bonds in Nov 2021. Will I be receiving a 1099 regarding earned interest at the end of each year? Or is there some other method if I want to report interest yearly?
A EE Bond issued in 10/2003 is worth about 73% of it’s face value today.
When the bond gets to 20 years US Treasury changes the value to Face value even if the interest didn’t get you there. Keeping the bond longer will keep boosting the value until 30 years. Interest rates can change on these bonds in many cases 2 times a year.
I have some EE bonds that are getting 3% or 2.5% interest that I will hold a little longer. Most of my EE bonds are at 0.1% so these I cash out at 20 year full face value.
EE Bonds - depending on the date of issue have different ways of figuring purchase price and face value.
Older paper bonds frequently were purchased for 50% of face value. So a $100 bond was purchased for $50. After 20 years it is worth face value or more.
Bonds purchased Electronically at www.treasurydirect.gov, are purchased at face value and will be valued at double the face value after 20 years. This muddy’s the waters when asking about Bond Values.
Basically EE bonds increase 100% or more after 20 years. They stop gaining any interest after 30 years.
Note - There are some older EE bonds that were valued at 100% of purchase after 17 years.
Check your bond at the website.
I bought some I bonds in Nov 2021. Will I be receiving a 1099 regarding earned interest at the end of each year? Or is there some other method if I want to report interest yearly?
No, there is no annual 1099 issued - just the 1099 upon maturity or when you cash it, whichever comes earlier. To report the interest annually, as Pub 550 said:
Choose to report the increase in redemption value as interest each year.
so you would look up the redemption value on the bond as of Dec 31 each year and report any increase as interest earned. Once you start this, you will have to do it every year, unless you apply to change your method of reporting. And if you have other savings bonds that you own in addition to the ones you purchased in Nov 2021, you will have to report any change in redemption value that hasn’t already been reported as interest the year that you start reporting the redemption value for the I-bonds, since you have to use the same method for all savings bonds you own. If you’ve had some other savings bonds around for a while, that could be a large tax hit.
Since you purchased in November, and I-bonds aren’t redeemable for a year, you wouldn’t have any interest to report for 2021. For 2022 - 2025, the redemption value provided to you will presumably be adjusted for the 3 month interest penalty for redeeming early. That means in 2026, when the I-bonds become redeemable without paying a penalty, you’ll have an extra 3 months of interest to pay taxes on, since that penalty will no longer be deducted from the redemption value.
Even though you are reporting the interest annually, when you cash in the bond, you will still get a 1099 for the entire amount. You will have to adjust that interest amount down by the interest you have already paid taxes on. In order to document this, you should have copies of all previous tax returns you declared the interest on.
I’m curious about redeeming the EE Bonds. Is there a place other than your local bank where you can bundle up all your EE’s and mail them off and cash out. The reason I ask is because I dread going to the bank, standing in a long line, getting to the Teller and then staying there for 10-15 minutes placing my Name, Address, City, State, Zip, Signature on each and every one of the bonds and having the Teller look up the values and all the while there is a line of 30-40 angry customers building up behind you. Leave it to the Government to figure out the most inconvenient way to do things.
Just seems to me I could do all that grunt work at home and send them off certified mail and wait a couple weeks or months and get my money and go play golf. Done deal.
Regards,
ImAGolfer (retired '03)
P.S. That’s what one gets for buying bonds every month at work.
I’m curious about redeeming the EE Bonds. Is there a place other than your local bank where you can bundle up all your EE’s and mail them off and cash out.
all the while there is a line of 30-40 angry customers building up behind you.
Find a better bank (or credit union).
At my credit union, I rarely see a line of more than 2 people waiting. Maybe I’m always going at off-peak hours, but you probably can do that too with your “job”.
Also my credit union pays better interest, is less fee-happy, and generally seems more customer-focused than either of the national banks I’ve dealt with (BofA and WF) I’ve had better experiences with small-town banks that only had a handful of branches - but those are not near where I live now.
I went the same route a few years ago. Bought bond monthly thru payroll deduction.
If You have the paper bonds go to www.treasurydirect.gov .
Open an online account with them , make a manifest of all your bonds with dates and serial numbers.
Once they gather all the info they will have you send the bonds to them. You will now have an online account with them. This will show you the summary list and details for each bond. If the bonds have reached their 30 year maturity You can cash them out. Register your bank account with them for ACH transfers. EE Bonds that you might have in hand will be valued at face value or more after 20 years. After 30 years they have matured and no longer earn interest.
If You intend to cash them all in now, check with the bank to see if they will cash them for you.
Larger banks can still cash them out. Others will send them to Treasury for You. Banks no longer sell paper bonds. It is all done electronically via treasury direct now.
You don’t get the bond in your hands now.
I have EE bonds that are from late 1990s through late 2000s. Once a year I check online and depending on the interest rate I sell the ones that have reached face value if the interest rate is low. Some have reached face value but are earning 3 - 4% interest so I may keep a few of those for a few years. Some earlier bonds that had nice interest from late 80’s thru early 90s have all been sold.
So if you have bonds over a few decades you may want to go with sending them in. If you have just a few years worth you may find it convenient to deal with a local bank.
We have kept EE bonds beyond initial maturity, and as long as final maturity (2021). Thus far, it has always been the case that we receive the interest when cashed in, and it is taxed in the year it is redeemed.