Should the elderly redeem their bonds before passing them to heirs?

Tuesday, March 28th, 2006
Categorized as: Inheriting and bequeathing US Savings BondsSavings Bond taxes

My dad is 92 and in pretty good health. He has a large investment in Savings Bonds. Should he cash the bonds in or leave them to be cashed after his death? He is widowed and there are three of us children. I have Power of Attorney. He doesn’t need the money now, but might later on.

Tom’s response

First, are they still paying interest? If not, you should redeem them. The tax on these was officially due in the year they stopped paying interest.

If your father bought these bonds on a regular basis, filing amended returns for the years in which the bonds expired may actually be advantageous, as it can even the large lump of income out over several years.

If your dad likes Savings Bonds he can just reinvest in new ones. But save back enough money to pay the income tax. You’ll find my post about calculating how much to hold back for taxes helpful.

If his bonds are still paying interest, there’s still good reason to consider rolling them over into new bonds. When you do this your dad will owe tax on the interest, but as long as his tax rate is lower than the rate of his heirs, it makes good sense.

If he doesn’t pay the tax on them now, his estate will either pay it on all of his bonds at once on his final tax return or his heirs will pay it at their rates – there’s no way to get out of it. Paying a bit year by year usually lowers the family’s total tax bill.

You’d benefit from a weekend reading my book, Savings Bond Advisor, especially the chapter called Managing the deferred-tax time bomb.

You should also make sure your Power of Attorney specifically mentions Savings Bonds.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:


On January 25th, 2010 LOIS WOOTEN said:

I CASHED A $ 5000.00 EE BOND THAT I PAID $2500.00 IN OCT 1992. CASHED IT OCT.5 2009.
the valvue at that time was $ 6, question is how much federal tax do I OWE?

On January 26th, 2010 Tom Adams said:

Lois – The amount of income tax you will owe depends on your other income. You need to add the interest you’ve earned ($6,196 – $2,500 = $3,696) to your 2009 tax return that you’ll file in the next few months.

If this is your only 2009 income, you’d owe no taxes at all. If your other taxable income is more than $372,950, you could owe 35% (less than $1,300).

Tom Adams

On January 26th, 2010 donna leone said:

1 redid my kitchen and cashed in a $10,000 bond my mother left me. It was purchased in ’91. I am on Social Security and have a pension and made about $2,000 income. I had to pay $2500 to the IRS. It doesn’t seem fair…

On January 27th, 2010 Tom Adams said:

Donna – You don’t say how much your SS and pension benefits were, but if they were $20,000, then your total income was about $30,000, and your taxes were about 8.5% of your income. What rate do you think would be fair?

Tom Adams

On February 15th, 2010 curtis little said:

I am 75 years old, married, retired, on ss. I have several thousand dollars worth of ee bonds, in my name with wife as beneficiary. We want to help with our grandsons’ education expenses. What are our options. Give me some direct details, please. Do we even qualify?

On February 16th, 2010 Tom Adams said:

Curtis – Grandparents can’t get a tax deduction for college education expenses. Your best option is to cash a few of the bonds each year – keep the amount low enough that the interest earnings don’t impact your taxes – and just give the money left after paying the tax to your grandsons.

Tom Adams

On February 17th, 2010 Robert said:

Tom, I was just reading the comments section. I liked to ask a follow-up question about Curtis’ question. Although grandparents can’t benefit the education tax deduction with savings bonds would it be feasible for him to change the registration of the bonds to make one of his children (the grandson’s parent) a co-owner, who then could cash the bond in for the education of the grandsons and not pay any taxes on the interest if they are under the income limits?

On February 18th, 2010 Tom Adams said:

Robert – If you change the owner from the grandparent to the parent it’s a taxable event. The IRS has had years to figure out all the loopholes and close them. Sorry.

Tom Adams

On March 9th, 2010 theresa mclaughlin said:

I just found 6 $25 E series savings bonds from Jan. 1970. It is for my daughter from a dear friend of mine. It says “payable on his death”. He’s only 60. I read that interest stops earning after 30 years. Does my daughter just hold on to them even though it’s not earning any interest? Do I ask my friend if they can be turned in and then put into an interest bearing savings account?

On March 10th, 2010 Tom Adams said:

Theresa – Your friend will have to cash the bonds and give your daughter the money. She can’t cash them herself.

Tom Adams

On March 15th, 2010 Mike Cooper said:

I have nearly $10,000 in “I” series bonds that matured several years ago. After 5 years maturity, are the bonds still earning interest? If I need $4,000 now, should I cash in bonds or take cash from bank savings account?

Thank you for your response.

On March 16th, 2010 Joe said:


When an I bond is purchased with two co-owners and then one of them dies, can that persons name be changed on the bond to someone eles?

Thanks, love the site.


On March 16th, 2010 Jean said:

I have a friend in Mexico who had a baby in Jan. 2010. I want to buy a US Savings Bond for the baby. Should I make the baby the co-owner or the beneficiary? Will she have a hard time cashing the bond since she’s not a US citizen?

On March 16th, 2010 Tom Adams said:

Mike – I’m not sure what you mean by maturity, but it’s not the usual meaning. I bonds pay interest for 30 years. If these bonds were issued in 2001 or before they are about the best place you can have money invested today and pay much higher rates than your savings account.

Joe – The information you’re looking for is here.

Jean – Although what you want to do is allowed, I wouldn’t recommend it. There’s more info here.

Tom Adams

On March 16th, 2010 Bob Koenig said:

I have several EE 1990 $1000 bonds. They are owned by my wife (or) an uncle, both are deceased. Can I assume possession, having her death certificate, and then have a grandchild as a co-owner? What kind of form will I need? What kind of documentation? My bank does not get involved with this.

On March 17th, 2010 Tom Adams said:

Bob – you will need death certificates for both your wife and the uncle. The bonds belong to the heirs of whoever died last. If that’s your wife, you can either cash the bond or have it reissued to you.

After that, you can reissue it to your grandchild, but that will be a taxable event for you and I do not recommend it.

The form you need to use depends on whether your wife’s will has handled by a probate court or not and, if so, whether the case is still open or has been closed. My book has the details on the forms and additional paperwork you need to send in.

Tom Adams

On March 18th, 2010 J.J. WALD said:


On March 19th, 2010 Tom Adams said:

J.J. – You are asking whether Savings Bonds have a stepped-up basis. The answer is no. Stepped-up basis applies to capital gains. Savings Bonds don’t have capital gains, they just earn tax-deferred interest. The beneficiary will be required to pay income tax on all the interest the bonds have ever earned.

Tom Adams

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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