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Eriilopmasa · 10-31-2007, 03:03 PM

in value over the years, is it a good idea to "cash them in" so that the person could get 5% or 51/2 % interest on other investments? Keep in mind that the person would have to pay income taxes on the amount of gain from the bonds, because income tax on the bonds is not paid until they are cashed in. The person is retired.<br />

ZNOF · 10-31-2007, 03:03 PM

If the bond owner has not paid income tax on the bonds annually (as it accrues), then the entire interest amount since issue will be taxable for the year in which the bond is cashed.
Whether the presumed higher return you can get for the money elsewhere will offset the tax cost depends on a number of factors including your other income.

Ross · 10-31-2007, 03:03 PM

There is no single right answer to this question, but I would tend to recommend cashing in the savings bonds and reinvesting in a higher yielding investment. That's especially true if the owner is in the 15% tax bracket, which is a very low tax rate by historical standards.

If you cash them in you are playing the odds that you probably won't be able to avoid paying taxes at some point, so better do it now and take advantage of current low tax rates and availability of other fixed income investments with higher yields. Delaying the inevitable only risks that the retiree might pay even more taxes in the future while sacrificing yield by keeping the money in savings bonds.

If the owner is in the 15% tax bracket, he or she should spread the redemptions over as many tax years as necessary to avoid going into a higher tax bracket.

Cashing in the bonds makes a lot of sense, but unfortunately it isn't guaranteed to be the best possible decision. For example, suppose that the owner delays redeeming the bonds and later suffers a serious illness that results in large out-of-pocket medical expenses. He or she may be able to pay the medical expenses by cashing in the savings bonds. If the medical expenses are high enough to claim as an itemized deduction, the deduction could easily be enough to completly offset the additional income caused by cashing the bonds. In this scenario the income from the savings bonds would be, in effect, tax free.

10-31-2007, 03:03 PM	#1
Eriilopmasa Greenhorn Join Date: Oct 2007 Posts: 42 Rep Power: 5	If a person has money in U. S. Savings bonds, EE, which is paying 4%, and if the bonds have greatly increased? in value over the years, is it a good idea to "cash them in" so that the person could get 5% or 51/2 % interest on other investments? Keep in mind that the person would have to pay income taxes on the amount of gain from the bonds, because income tax on the bonds is not paid until they are cashed in. The person is retired.<br />

10-31-2007, 03:03 PM	#2
ZNOF Greenhorn Join Date: Jul 2006 Posts: 16 Rep Power: 0	If a person has money in U. S. Savings bonds, EE, which is paying 4%, and if the bonds have greatly increased? If the bond owner has not paid income tax on the bonds annually (as it accrues), then the entire interest amount since issue will be taxable for the year in which the bond is cashed. Whether the presumed higher return you can get for the money elsewhere will offset the tax cost depends on a number of factors including your other income.

10-31-2007, 03:03 PM	#3
Ross Greenhorn Join Date: Jul 2006 Posts: 18 Rep Power: 0	If a person has money in U. S. Savings bonds, EE, which is paying 4%, and if the bonds have greatly increased? There is no single right answer to this question, but I would tend to recommend cashing in the savings bonds and reinvesting in a higher yielding investment. That's especially true if the owner is in the 15% tax bracket, which is a very low tax rate by historical standards. If you cash them in you are playing the odds that you probably won't be able to avoid paying taxes at some point, so better do it now and take advantage of current low tax rates and availability of other fixed income investments with higher yields. Delaying the inevitable only risks that the retiree might pay even more taxes in the future while sacrificing yield by keeping the money in savings bonds. If the owner is in the 15% tax bracket, he or she should spread the redemptions over as many tax years as necessary to avoid going into a higher tax bracket. Cashing in the bonds makes a lot of sense, but unfortunately it isn't guaranteed to be the best possible decision. For example, suppose that the owner delays redeeming the bonds and later suffers a serious illness that results in large out-of-pocket medical expenses. He or she may be able to pay the medical expenses by cashing in the savings bonds. If the medical expenses are high enough to claim as an itemized deduction, the deduction could easily be enough to completly offset the additional income caused by cashing the bonds. In this scenario the income from the savings bonds would be, in effect, tax free.

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