Is there a penalty for cashing EE bonds before maturity?
You can cash in (redeem) your EE bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.
If you hold savings bonds and redeem them with interest earned, that interest is subject to federal income tax and possibly federal gift taxes (highly unlikely as the per-person cap is $10,000 and the gift tax exemption is $17,000).
However, know that if you redeem the bond before five years pass, there's a penalty: you lose the last three months of interest you earned. So, for example, if you cash in a Series EE bond after 2 years, you'll get to keep the first 21 months of interest.
While the Treasury will not penalize you for holding a U.S. Savings Bond past its date of maturity, the Internal Revenue Service will. Interest accumulated over the life of a U.S. Savings Bond must be reported on your 1040 form for the tax year in which you redeem the bond or it reaches final maturity.
However, investors who sell their bonds prior to maturity will only receive the interest due on the bond until the date of the sale. They will lose all rights to the interest that would have accrued between the date of the sale and the bond's maturity date.
The interest on EE bonds isn't taxed as it accrues unless the owner elects to have it taxed annually. If an election is made, all previously accrued but untaxed interest is also reported in the election year. In most cases, this election isn't made so bond holders receive the benefits of tax deferral.
Key Takeaways. Interest from EE U.S. savings bonds is taxed at the federal level but not at the state or local levels for income. The interest that savings bonds earn is the amount that a bond can be redeemed for above its face value or original purchase price.
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|---|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
You can report the interest each year you earn it or when you cash the bond. You will report it on Schedule B of your 1040. You can avoid these taxes by using the money for qualified higher education expenses.
Where do I cash in a savings bond? You can cash paper bonds at a bank or through the U.S. Department of the Treasury's TreasuryDirect website. Not all banks offer the service, and many only provide it if you are an account holder, according to a NerdWallet analysis of the 20 largest U.S. banks.
Will I get a 1099 for cashing in savings bonds?
At a bank: If a bank cashes your savings bond, they are responsible for getting you a 1099-INT. They may give or mail you the 1099-INT as soon as you cash the bond or they may wait until the following January.
EE bonds you buy now have a fixed interest rate that you know when you buy the bond. That rate remains the same for at least the first 20 years. It may change after that for the last 10 of its 30 years. We guarantee that the value of your new EE bond at 20 years will be double what you paid for it.
If you still have a paper EE bond, check the issue date. If that date is more than 30 years ago, it is no longer increasing in value and you may want to cash it.
You may be able to cash in paper EE bonds at a bank where you have an account or through TreasuryDirect. Ask your bank about its process for cashing savings bonds. Ask your bank how much it will cash at one time. Determine the identification or other documents you will need.
An issuer may choose to call a bond when current interest rates drop below the interest rate on the bond. That way the issuer can save money by paying off the bond and issuing another bond at a lower interest rate. This is similar to refinancing the mortgage on your house so you can make lower monthly payments.
Investors of bonds, however, may decide it is more advantageous to sell a bond rather than hold it to maturity. Some of these reasons include anticipation of higher interest rates, that the issuer's credit will be lowered, or if the market price seems unreasonably high.
Interest from your bonds goes on your federal income tax return on the same line with other interest income.
If the executor doesn't include predeath interest on the decedent's final return, then the beneficiary owes federal income tax on all pre- and post-death interest on the earlier of the bond's maturity or redemption.
When you redeem it, you'll receive a Form 1099-INT that shows the full amount of interest the bond earned. You can report the interest earned every year. If you do, you can subtract the interest you paid tax on in prior years from your taxable income.
Here's an example of how Series EE bonds are taxed. Bonds issued in January 1990 reached final maturity after 30 years, in January of 2020. That means that not only have they stopped earning interest, but all of the accrued and as yet untaxed interest was taxable in 2020.
What are the tax advantages of EE bonds?
Benefits of both I bonds and EE bonds: Tax advantages. Both I bonds and EE bonds offer tax advantages, including federal tax deferral until the bond is redeemed or reaches maturity, and exemption from state and local taxes. If used for educational expenses, they may be free from federal tax as well.
You'll be able to cash a minimum of $25, or any amount above that in one-cent increments. When you cash your bonds online, the cash generally transfers to your checking or savings account within two business days of the request.
After 20 years, the Patriot Bond is guaranteed to be worth at least face value. So a $50 Patriot Bond, which was bought for $25, will be worth at least $50 after 20 years. It can continue to accrue interest for as many as 10 more years after that.
Paper Series EE bonds were sold at half their face value. For example, if you own a $50 bond, you paid $25 for it. The bond isn't worth its face value until it matures.
All Series EE bonds reach final maturity 30 years from issue. Series EE savings bonds purchased from May 1995 through April 1997 increase in value every six months.
