Series EE Savings Bonds are a low-risk investment offered by the U.S. Department of the Treasury. These bonds provide a guaranteed return, doubling in value over a set period. If you own Series EE Bonds and want to cash them, it’s important to understand the process, requirements, and potential tax implications.
Understanding Series EE Bonds
Series EE Bonds earn a fixed interest rate and are backed by the U.S. government. They are designed to double in value over 20 years, with an interest-earning period of up to 30 years. After 30 years, the bonds stop accumulating interest, making it an ideal time to cash them.
When Can You Cash Series EE Bonds?
You can cash Series EE Bonds after holding them for at least one year. However, if you redeem them before five years, you will lose the last three months of interest. To avoid penalties, it’s recommended to wait at least five years before cashing them.
How to Cash Paper Series EE Bonds
If you have paper Series EE Bonds, you can redeem them through the following methods:
1. Cashing at a Bank or Credit Union
Most banks and credit unions can cash paper savings bonds. You may need to provide identification, such as a driver’s license, and some institutions may have limits on how much you can cash at one time. It’s best to call ahead to confirm their policies.
2. Redeeming by Mail
If you cannot cash your bonds at a bank, you can send them to the U.S. Department of the Treasury by mail.
Steps:
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Fill out FS Form 1522 (Request for Payment of United States Savings and Retirement Securities).
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If cashing more than $1,000, get your signature certified by a bank or financial institution.
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Mail the completed form and your bonds to the Treasury’s designated address.
Processing times vary, so allow several weeks for the payment to be processed.
How to Cash Electronic Series EE Bonds
If your Series EE Bonds are held electronically in a TreasuryDirect account, the process is easier and faster:
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Log in to your TreasuryDirect account.
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Go to the “ManageDirect” section.
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Select the bonds you want to redeem.
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Choose the amount to cash.
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Confirm the transaction.
Funds will be deposited into your linked bank account, usually within one business day.
Tax Implications of Cashing Series EE Bonds
Interest earned on Series EE Bonds is subject to federal income tax but is exempt from state and local taxes. You can choose to report the interest annually or defer it until the bond is redeemed.
If you use the bond proceeds for qualified higher education expenses, you may qualify for a tax exclusion. However, eligibility depends on your income and other factors, so it’s advisable to check the latest tax regulations or consult a tax professional.
Special Considerations
Bonds That Have Reached Maturity
If your bonds have reached 30 years, they are no longer earning interest. It’s important to cash them to avoid missing out on potential investment opportunities elsewhere.
Lost, Stolen, or Destroyed Bonds
If your Series EE Bonds are lost or destroyed, you can request a replacement or payment by completing FS Form 1048 (Claim for Lost, Stolen, or Destroyed United States Savings Bonds). You will need to provide as much information as possible about the bonds.
Bonds Held in Trust or Estates
If the bonds are part of an estate or trust, additional documents, such as a death certificate or trust agreement, may be required before they can be cashed.
Common Mistakes to Avoid
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Forgetting Maturity Dates – Bonds stop earning interest after 30 years, so redeeming them on time is crucial.
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Not Considering Taxes – If you don’t report interest properly, you may face tax penalties.
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Cashing Too Early – If redeemed before five years, you will lose three months of interest.
Avoiding these mistakes can help you get the most from your Series EE Bonds.
Conclusion
Cashing Series EE Bonds is a straightforward process, whether you have paper or electronic bonds. By understanding the best time to redeem them and the tax implications, you can maximize your investment. Make sure to follow the correct procedures to ensure a smooth transaction.
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