savings bond?

[Snoopy2645]

someone said to me if you cash them in early you pay a penalty I know you dont get the full amount but do u pay a pentality also I had never heard this before? Also they said you pay taxes on interest earned I thought that was only if you had a ton I dont know much about this can someone please clairify this for me thanks!!

[Gailete]

It's been a coupld of years since I cashed one in, but the penalty I believe is like the last three months worth of interest if you cash it in before you have had it for 5 years. You do not owe local or state income taxes on savings bond interest when you cash it, but you will owe federal taxes. Federal taxes are due on any income not matter how tiny--that's why deductions are so important.

[akaivyleaf]

I always thought the penalty was presumed because you don't get interest on a daily basis, but semi annually when the rates fluctuate. I believe May 15th is the date, but don't quote me there. If you cash the bond on June 15th, you just get interest until May15th. Same if you cash it out on December 15th, you don't get the benefit for the months between rate change and when you cash in, thus penalized.

Humm, this is something I need to read up on.

[baselle]

Okay, deep breath...here are the facts.

1. You can cash in a savings bond after holding it for 1 yr, based on the issue date (month and year). If you are clever about buying that bond at the end of the month, you effectively shave off most of the month.

2. If you cash in a savings bond between 1- 5 yrs, you will be docked three months of interest. This "penalty" is taken as you redeem it, so you will get slightly less for the bond than you'll think you get.

3. Savings bonds are federal tax deferred, and not subject to state or local tax. If you use them for educational purposes, you don't pay federal tax either. As long as you don't cash a savings bond in, you don't have to pay federal tax. In the year that you cash the bond, you pay tax only on the interest accrued - its considered income - at your tax rate.

4. Savings bonds mature at 30 yrs. This means that they stop earning interest, and it also means that you will be taxed on the interest the year they mature. If you have a ton of old bonds, you'll want to redeem them gradually over a period of years, to avoid having what's called a "tax bomb".

Here are a couple of good web sites to help you out:
http://www.publicdebt.treas.gov/bpd/bpdsitemap.htm
http://www.savings-bonds-alert.com/

[CheaplyClever]

Originally Posted by baselle

Okay, deep breath...
4. Savings bonds mature at 30 yrs. This means that they stop earning interest, and it also means that you will be taxed on the interest the year they mature. If you have a ton of old bonds, you'll want to redeem them gradually over a period of years, to avoid having what's called a "tax bomb".

Terrific advice. Thanks for the time you spent sharing. I need to do some homework on bonds. My mother bought them for years and I have a large stack of them in the safety deposit box. I know I should have the names changed since I am the owner now and no longer the beneficiary.

[baselle]

Originally Posted by CleverButCheap

Terrific advice. Thanks for the time you spent sharing. I need to do some homework on bonds. My mother bought them for years and I have a large stack of them in the safety deposit box. I know I should have the names changed since I am the owner now and no longer the beneficiary.

Here's a bit of advice for you, depending on how comfortable you are putting your finances online. You can buy and redeem savings bonds online via Treasury Direct --
https://www.treasurydirect.gov/

You can also convert paper bonds online also, if you have a Treasury Direct account. You ask to be invited via email, and Treasury Direct will set up a linked account with instructions on how to sort, register, make a manifest, and finally mail in the bonds. They then go into your online account and you can use/track of them more comfortably.

I'm in the process of converting a bond in and I can already see one big advantage -- you don't sign individual bonds, but instead you bundle up to 50 bonds in a manifest and sign that once. It'll make sure that memories of your mother don't conjure up hand cramps

[CheaplyClever]

Thanks, Baselle, I bookmarked the website. I remeber another thread a while back on this same subject, maybe from Jeffrey?

I'm not real comfortable about using my SS# on-line... But it certainly is worth checking into.

I did find out that bonds purchased in 1992 through February 1993 yielded 8% interest for five years and then the interst dropped to 6% for the next 12 years. Guaranteed. My February '93 bond is still earning a 6% yield, prior to that date, the bonds purchased have dropped to a 5.92% yield. In other words, the February '93 bond was purchased at $250 and has earned $258.20 in interest in just 12 years and will not mature until 2023. There isn't much else that will match this return.

As I feel my way through the on-line treasury process, I'll keep in touch. But in the meantime, if anyone else has bonds, go to http://www.publicdebt.treas.gov/sav/savwizar.htm
and use the wizard to calculate their worth. I am still in shock.

[baselle]

Oh good - I was worried that you had a ton from 1975 that you'll have to redeem this year. But you have a bit of time.
I got a EE savings bond from 1991, and I know, I'm still in shock by how much its worth, too.