Author Topic: What is an EE series savings bond?  (Read 2032 times)

plirette

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What is an EE series savings bond?
« on: February 06, 2018, 06:32:08 PM »
My fiance has a number of EE series savings bonds. She is looking into cashing them in to invest them in something else. Possibly real estate.

She has asked me for advice, but I'm not familiar with savings bonds. Can someone explain to me the EE series savings bonds? Should she cash them in? What are the taxes going to be on cashing them in? Can she avoid the taxes? Possibly by investing them elsewhere?

Thanks!

ILikeDividends

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Re: What is an EE series savings bond?
« Reply #1 on: February 06, 2018, 07:12:24 PM »
https://www.treasurydirect.gov/indiv/products/prod_eebonds_glance.htm

No one here can ethically advise whether a 3rd party, one who is not even representing her own interests here, should or shouldn't cash in these bonds.

If you want to advise her, you need to understand what the instruments are, as well as any tax consequences for selling them, so that you can explain it well enough to her to make her own decision.

Whether she bought the bonds before May 2005 is another issue.  Prior to that, they were functionally different instruments, having different terms, masquerading under the same name.

Furthermore, paper EE bonds (no longer offered for sale) were sold at half the face value. You need to research whether she will be forfeiting the other half if redeemed before 30 years after issuance, if she bought paper bonds (as opposed to electronically issued bonds).

I don't actually know if there is a secondary market for these bonds, but your broker should be able to tell you whether they can actually be sold (as opposed to redeemed by the US Treasury).

Good luck!  You should, at the very least, try to finagle a homemade candlelight dinner out of her for your efforts.  ;)
« Last Edit: February 06, 2018, 07:47:52 PM by ILikeDividends »

Radagast

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Re: What is an EE series savings bond?
« Reply #2 on: February 06, 2018, 08:59:19 PM »
Type their serial numbers into here:
https://www.treasurydirect.gov/indiv/tools/tools_savingsbondcalc.htm
That will let you see their rates. Some are getting 4% yield, which is pretty good for a government bond right now. Some others are not so good.

They double their starting value at 20 years. Hilariously, that means comparing their current redemption value to their value after they mature gives absurd high rates of return. If they are within 10 years of maturing they have an implied rate of return of 7% (actually it varies... check for yourself) guaranteed and very hard to beat. Within five years it is near impossible to find something with a better return. Really you should hang on until they expire unless they are issued after 2012. And there would be no point in buying new ones. https://www.bogleheads.org/forum/viewtopic.php?t=151634

There is no secondary market. You redeem them at the Treasury or a bank.

I have about 2 dozen that some well meaning people gave me instead of VTSMX between 1991 and 2000. I'll use them to pay for my wife's tuition as soon as the last one matures.
« Last Edit: February 06, 2018, 09:06:30 PM by Radagast »

Mr. Green

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Re: What is an EE series savings bond?
« Reply #3 on: February 07, 2018, 07:03:27 AM »
Echoing what Radagast said, check their current value. My wife had several EE bonds from when she was younger. After doing the math, there was a reasonable expectation that some of them could be cashed now and market returns would outperform the difference between their current value and their stated value over the number of years they had left to maturity. However, thanks to the super low interest rate environment of the last decade some of them were worth so little if cashed in early that we couldn't reasonably expect the market to outperform them if we cashed them in now and invested the proceeds. Those she's holding to maturity.

If you do cash them in you will pay tax on the gains in the year in which you cashed them in. The bank where you cash them will send you a tax form at the end of the year.

Roadrunner53

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Re: What is an EE series savings bond?
« Reply #4 on: February 07, 2018, 07:13:35 AM »
I have a boatload of Series EE bonds I bought thru payroll deduction years ago. The oldest ones are from 1998. I paid $50 for each bond and the older ones are worth about $103 each now. I have read that at 17 years they are mature and I have 1998-2002 that I would like to cash in next year. It would be approximately $20,000. So would I have to claim $10,000 in gains? That might be very bad!

simonsez

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Re: What is an EE series savings bond?
« Reply #5 on: February 07, 2018, 07:17:11 AM »
Look up when they were issued - I had several with a 17 year maturity (1997-2003).  Barely humming along at 1.66% and only ~70% of the mature value after 16+ years and then BAM, instantly at 100% value after 17 years.

Learn the schedule for when they mature in the very least and do like others have suggested.  If they're the paper type (unsure about electronic-only type) then you can very likely NOT sell them to someone else.  They probably have your SSN on them.

Roadrunner53

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Re: What is an EE series savings bond?
« Reply #6 on: February 07, 2018, 07:33:48 AM »
Yes, they are paper and the first year we have are 1998 thru 2005. Once matured they will be worth around $27,000.

I have an appointment with a CPA to do my taxes so that will be a question I will bring up. She may suggest cashing them in slowly to avoid paying a lot of taxes.

Radagast

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Re: What is an EE series savings bond?
« Reply #7 on: February 07, 2018, 08:53:18 AM »
Thats good to know, I didn't realize some doubled after 17 years. Looks like my last two do so in April! Now that is good.

A couple tips about that calculator website I gave. It has peculiarities. It will work for sure in Firefox, and use f10 save as html otherwise it will not save the hundreds of digits you just typed.

After the first five years, the time to maturity is probably and then definitely more important to the annual rate of return than the nominal interest rate.

Roadrunner53

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Re: What is an EE series savings bond?
« Reply #8 on: February 07, 2018, 09:04:49 AM »
LAS you are confusing me with another poster. I have an approx. income of $60K a year. If I were to cash in these bonds, the ones that are mature, that would add about $20K to my income making it $80K. The face value of the bonds when bought were $50 each and now are worth a bit more than $100 each. So, they gained $10K in value over 17 years or more time. This is where I am unsure of how much tax I would get hit with.

I'm a red panda

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Re: What is an EE series savings bond?
« Reply #9 on: February 07, 2018, 09:15:14 AM »
Here is some information about tax on savings bonds.
https://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eetaxconsider.htm#interest


Also note - the social security number on the bond must match the account for tax reasons.  I have joint accounts with my husband, but since he is primary, I had to open new bank accounts with my social as primary to be able to cash my bonds.
« Last Edit: February 07, 2018, 09:30:06 AM by iowajes »

plirette

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Re: What is an EE series savings bond?
« Reply #10 on: February 07, 2018, 03:25:25 PM »
Wow. Thanks everyone for your replies. We have been using your advice and the links above to learn more about my fiance's savings bonds.

All of them were issued before 2005, and the first ones will reach final maturity next year. Since she is thinking about returning to school, she will most likely cash some of the bonds in to pay for her tuition. Otherwise, she will wait to cash them in at full maturity.

At least that's the plan for now.

Thanks again!

ZMonet

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Re: What is an EE series savings bond?
« Reply #11 on: February 07, 2018, 05:01:11 PM »
FYI -- Information about previously mentioned education exemption, including qualifications:
https://www.treasurydirect.gov/indiv/planning/plan_education.htm

Education Tax Exclusion
The savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution.

Roadrunner53

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Re: What is an EE series savings bond?
« Reply #12 on: February 15, 2018, 05:27:54 AM »
CPA suggested that we cash in matured bonds worth around $15,000 next year. With that, our Social Security, one small pension, one IRA that is RMD and another small withdrawal from another IRA we will manage to stay in the 12% bracket for income. After that the bonds that are left will have to be withdrawn yearly as they mature to the 17 years.