EE savings bonds, particularly in paper form, have been a trusted savings tool for many Americans since the 1980s. Issued by the U.S. Treasury, these bonds are known for their guaranteed returns and security, as they’re backed by the “full faith and credit” of the U.S. government. While EE bonds no longer come in paper form for new purchases, many people still hold onto older paper EE bonds they acquired years ago. Eventually, the time comes when you may want or need to cash in these bonds, whether to use the funds for expenses, reinvest in new opportunities, or simply collect the interest that’s been accruing over the years.
In this article, we’ll explore the process of cashing in EE paper bonds, covering the essential requirements, different cashing options, tax considerations, and special cases that might apply.
Understanding EE Savings Bonds
EE savings bonds are low-risk savings products issued by the U.S. Treasury, intended for long-term holding. Their primary appeal lies in their security and fixed interest. EE bonds earn interest for up to 30 years, and they’re designed to double in value over 20 years. This guarantee of doubling value means that even if the interest rate is low, the bond will still yield a favorable return if held for the full 20-year term.
Paper vs. Electronic EE Bonds
Before 2012, EE bonds were available in paper form, which could be physically held. Since then, all new EE bonds are issued electronically through the TreasuryDirect system. However, many people still hold the older paper bonds and might be interested in cashing them out now that they have matured.
When Can You Cash EE Paper Bonds?
Knowing when you can cash your EE paper bonds is crucial to maximize their value.
Minimum Holding Period
EE bonds require a minimum holding period of 12 months from the issue date before they can be redeemed. Attempting to cash them before the first year ends will be unsuccessful, as they are not yet eligible for redemption.
Early Cashing Penalties
Although EE bonds can be cashed after 12 months, redeeming them before the five-year mark incurs an early withdrawal penalty. This penalty equals three months’ worth of interest, which will be deducted from the bond’s payout. If you have held the bond for more than five years, you won’t face any penalties upon redemption.
Optimal Redemption Time
EE bonds continue to earn interest for up to 30 years, at which point they stop accruing interest. To take full advantage of their potential growth, consider waiting until they reach their 20-year doubling milestone or the 30-year maturity mark. However, if you need the funds sooner, you can cash them out any time after the first 12 months.
How to Cash EE Paper Bonds
The process for cashing EE paper bonds can vary based on your personal preferences and circumstances. Here are the primary methods for redeeming these bonds.
1. Redeeming EE Paper Bonds at a Bank
One of the most common ways to cash paper EE bonds is through a bank or financial institution. However, not all banks handle bond redemptions, so it’s best to check with your bank beforehand to confirm that they offer this service.
Steps for Redeeming at a Bank
Gather Your Bonds and ID: Bring the physical bonds to the bank, along with government-issued identification. Most banks will ask for a photo ID, such as a driver’s license or passport, to verify your identity.
Complete the Redemption Form: Some banks may require you to fill out a form with details about the bonds you’re cashing. Be prepared to provide information such as the bond’s serial number and issue date.
Receive Your Funds: Once the bank processes the bonds, you’ll receive the payout directly. In most cases, you can choose between a cash payout or a deposit into your bank account.
Limitations and Requirements
Typically, banks only redeem bonds for customers who have had an account with them for a certain period. If you are not a long-standing customer, the bank may place a limit on the redemption amount, or it may refuse to cash the bonds altogether.
2. Cashing EE Bonds by Mail
If visiting a bank isn’t feasible or convenient, another option is to redeem the bonds through the mail by sending them to the Treasury Retail Securities Services.
Steps for Redeeming by Mail
Complete FS Form 1522: You’ll need to fill out Treasury Form FS 1522, available on the TreasuryDirect website. This form requires information about the bonds and your payment preferences.
Have Your Form Notarized: To confirm your identity, Treasury requires a notary’s stamp on the form. Notary services are commonly available at banks, legal offices, and shipping centers.
Mail the Bonds and Form: Send the completed form, along with your EE paper bonds, to the Treasury Retail Securities Services at the address listed on the form.
Wait for Processing: Treasury processing can take several weeks. Once completed, the payment will be sent to your bank account or mailed as a check, depending on your choice.
Considerations for Mailing
Ensure that all information on the form is correct, and consider using tracked mail to safeguard the original bonds.
Special Cases for Cashing EE Bonds
Certain situations may involve additional steps or requirements when redeeming EE paper bonds.
Cashing Bonds for a Minor
If a minor owns the bonds, a parent or guardian may cash them on the minor’s behalf. The parent will need to provide proof of the minor’s ownership, often through identification documents or a birth certificate, and may need to fill out additional paperwork verifying their authority to redeem the bonds.
Cashing Bonds After the Owner’s Death
When a bond owner passes away, the executor of their estate, or the designated beneficiary, can redeem the bonds. If the bond is co-owned, the surviving co-owner can usually redeem it by showing identification and the deceased’s death certificate.
If the bond lists a “Payable on Death” (POD) beneficiary, the beneficiary can redeem the bond by submitting the original bonds along with identification and a certified death certificate.
Cashing Bonds with a Name Change
If the bond owner has undergone a name change due to marriage or other reasons, they may need to provide documentation, such as a marriage certificate or court order, to verify the name change when redeeming the bonds.
Tax Considerations When Cashing EE Bonds
Cashing EE bonds has tax implications, as the interest earned on these bonds is subject to federal income tax.
Federal Income Tax
Interest earned on EE bonds is taxable at the federal level. When you cash the bonds, the IRS considers the accrued interest as income for that tax year. You will receive a Form 1099-INT from your bank or the Treasury detailing the amount of interest earned, which must be reported on your tax return.
Tax-Exempt Education Use
In some cases, EE bond interest may be exempt from federal taxes if the bond proceeds are used for qualifying education expenses. The Education Savings Bond Program allows bondholders to exclude interest from taxable income if the funds are used to pay for college tuition or fees for themselves, their spouse, or a dependent.
To qualify, certain conditions must be met, including income limits and enrollment in an eligible institution. Consult the IRS guidelines or a tax advisor to determine if your bond interest qualifies for this tax benefit.
Maximizing the Value of Your EE Bonds
To get the most from your EE bonds, it’s essential to consider the timing and potential tax benefits before redeeming them.
Wait Until Bonds Mature
EE bonds are designed to reach full value after 20 years, doubling the initial investment. Waiting until the 20-year mark can maximize the bond’s return. Additionally, EE bonds continue to earn interest for up to 30 years, so holding them beyond the doubling period can yield even more.
Check Tax Benefits for Education Expenses
If you or a family member has upcoming educational costs, consider using the bonds to fund those expenses and potentially benefit from the tax exclusion on interest.
Conclusion
Cashing EE paper bonds is a straightforward process that can be done at a bank or through the mail, depending on your preference and circumstances. With careful planning, you can maximize the benefits of these bonds, whether by waiting for them to mature, minimizing taxes, or using them for educational purposes. Understanding the steps involved, the tax considerations, and any special requirements ensures a smooth redemption process, allowing you to access the full value of your investment.
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