Series EE bonds are one of the most popular types of savings bonds in the United States. Introduced by the U.S. Treasury in 1980, they provide a safe and secure way to save money, offering a guaranteed return if held for a set period. Many individuals use them for long-term savings, gifting, or education funding. However, when the time comes to redeem these bonds, many are unsure about the process involved.
This article will provide a detailed guide on how to cash Series EE bonds, explain when they can be redeemed, and clarify the tax implications of doing so.
What Are Series EE Bonds?
Series EE bonds are savings bonds issued by the U.S. Department of the Treasury. They are purchased at face value and earn interest over time. Unlike traditional investments, Series EE bonds are low-risk and offer a guaranteed rate of return, making them a popular choice for conservative investors.
Series EE bonds have specific rules:
- They are guaranteed to double in value after 20 years, regardless of the interest rate.
- Interest accrues monthly and is compounded semi-annually.
- The bonds can continue earning interest for up to 30 years.
Although Series EE bonds are no longer issued in paper form, many individuals still hold these older paper versions. Understanding how to cash them is crucial for maximizing their benefits.
Who Can Cash Series EE Bonds?
Before diving into the steps for cashing EE bonds, it is important to understand who is eligible to redeem them. Not everyone can cash these bonds, and certain rules apply based on ownership.
Bondholder
If your name is on the bond as the owner, you are the only person eligible to redeem it. You must present the bond and provide proof of your identity when cashing it.
Co-Owners
If a Series EE bond has two names listed as co-owners, either person can cash the bond without the other person’s consent. This is a common situation for spouses or family members.
Beneficiaries
If a bond lists a beneficiary, that person can only cash the bond after the original bondholder’s death. The beneficiary will need to provide legal proof, such as a death certificate, along with personal identification.
Legal Representatives
If you are acting as a legal representative, such as an executor of an estate or someone with power of attorney, you may cash the bond on behalf of the owner. Appropriate legal documentation must be provided to the institution handling the redemption.
When Can You Cash Series EE Bonds?
Series EE bonds cannot be cashed immediately after purchase. They have specific rules regarding when they can be redeemed.
Minimum Holding Period
Series EE bonds must be held for at least 12 months before they can be cashed. If you attempt to redeem the bond within the first year, you will not be allowed to do so.
Early Redemption Penalties
If you cash a Series EE bond before it has been held for five years, you will lose the last three months of interest. For example, if you cash the bond after 18 months, you will only receive interest for the first 15 months.
Full Maturity
Series EE bonds reach full maturity after 20 years. At this point, the bond will have doubled in value, regardless of the interest rate. However, if you choose to hold the bond beyond 20 years, it will continue to earn interest for up to 30 years.
Step-by-Step Process to Cash Series EE Bonds
Once you have determined that your Series EE bond is eligible for redemption, the process of cashing it is straightforward. The following steps will guide you through the procedure.
Step 1: Determine the Value of Your Bond
Before you cash your bond, it is important to know how much it is worth. The value of a Series EE bond increases over time as interest is earned, so it may be worth significantly more than its original purchase price.
To check the current value of your bond, you can use the TreasuryDirect Savings Bond Calculator. You will need the following information:
- The bond’s series (EE)
- The issue date
- The denomination (face value)
This calculator will provide you with the current redemption value, including both the original amount and any interest earned.
Step 2: Decide Where to Cash Your Bond
The method for cashing a Series EE bond depends on whether you have an electronic or paper bond.
Paper Bonds
If you have paper Series EE bonds, you will need to visit a financial institution to cash them. Most banks and credit unions offer this service. However, not all institutions accept savings bonds, so it is a good idea to call ahead to confirm.
Electronic Bonds
If you hold electronic Series EE bonds through TreasuryDirect, you can redeem them online. The funds will be transferred directly to your bank account. Simply log in to your TreasuryDirect account, navigate to the “ManageDirect” section, and follow the instructions to redeem the bond.
Step 3: Bring Identification and Documentation
If you are cashing paper Series EE bonds at a bank, you will need to bring proper identification. A valid government-issued ID, such as a driver’s license or passport, is typically required.
If you are cashing the bonds on behalf of someone else, such as a deceased bondholder, you must provide additional legal documentation. This could include:
- A death certificate if you are a beneficiary
- Legal proof of power of attorney
- Court-issued documents if acting as an executor of an estate
Step 4: Sign the Bond for Redemption
When you are ready to cash the bond, you will need to sign the back of the bond in the presence of a bank representative. This serves as your endorsement, confirming that you are the rightful owner of the bond.
Do not sign the bond ahead of time. Banks require the signature to be made in their presence to prevent fraud or unauthorized redemption.
Step 5: Receive Your Payment
Once your bond has been verified and processed, the bank will provide your payment. Depending on the institution’s policy, you may receive the money as cash, a cashier’s check, or a direct deposit into your bank account.
For electronic bonds, the redemption amount will be transferred directly to your designated bank account through TreasuryDirect.
see also: What Does Foreign Exchange Mean in Investment?
Tax Considerations When Cashing Series EE Bonds
Series EE bonds are subject to federal taxes, but they are exempt from state and local income taxes. When you cash your bonds, the interest earned is reported as taxable income.
Reporting Interest Income
You have two options for reporting the interest earned on Series EE bonds:
Report the interest annually. You can choose to report the interest as it accrues each year. This is less common but may be useful if you want to avoid paying a large lump sum in taxes when you cash the bond.
Report the interest when the bond is redeemed. Most bondholders choose to defer reporting interest until they cash the bond or it reaches final maturity. This means that the interest earned over the life of the bond is reported all at once.
When you cash the bond, the bank will issue a 1099-INT form for the interest earned, which must be included in your federal tax return.
Educational Tax Exemptions
If you are using the bond’s proceeds to pay for qualified higher education expenses, you may be able to exclude some or all of the interest from federal income tax. To qualify, the bondholder must meet certain criteria, including income limits and using the funds for tuition or other qualified educational costs.
Conclusion
Cashing Series EE bonds is a simple process, but it requires following specific steps to ensure everything is handled properly. By understanding when and how to redeem your bonds, you can maximize their value and avoid penalties. It is also important to be aware of the tax implications, particularly if you are planning to use the funds for education. Whether you are holding paper bonds or electronic versions, knowing how to cash Series EE bonds will help you make informed decisions about your savings.
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