Cashing In Your Series EE Savings Bonds: A Comprehensive Guide

Series EE savings bonds, a staple of American savings for decades, have helped countless individuals grow their money over time. But eventually, the time comes to access those funds. Whether you’re planning for retirement, a down payment on a home, or simply need the cash, understanding the process of cashing in your Series EE bonds is crucial. This comprehensive guide will walk you through everything you need to know, from figuring out your bond’s value to choosing the best redemption method.

Understanding Series EE Savings Bonds

Before diving into the redemption process, let’s recap the key features of Series EE savings bonds. These bonds are:

• Sold at a Discount: You purchase a Series EE bond for less than its face value. For example, a $100 bond might cost $50.
• Grow Over Time: The bond earns interest over its lifespan, gradually increasing in value until it reaches its face value at maturity.
• Backed by the US Government: This makes them a very safe investment.
• Issued Electronically or in Paper Form: Electronic bonds are held in TreasuryDirect accounts, while paper bonds may be in your possession.
• Have an Interest Earning Period: Bonds issued from May 2005 onward earn interest for 30 years, while bonds issued before this date might have a different period.
• Have a Maturity Period: This is the point where bonds reach their full face value and stop earning interest. For most bonds, this is after 20 years but they may continue to be held for 30 years and earn interest

When Can You Cash In Your Series EE Bonds?

Technically, you can cash in a Series EE bond anytime after the first 12 months from the issue date. However, cashing in before five years will result in a penalty of the previous three months’ worth of interest. The penalty is not applied to bonds that are cashed in after 5 years. While you can redeem them before five years, it’s generally not advisable. The most financially beneficial time to cash in a bond is after it has reached maturity or has reached a point where you are happy with the amount of interest you have received. Remember that all bonds have a final maturity of 30 years, even if they’ve reached face value beforehand. After 30 years no additional interest will be earned.

Determining the Value of Your Series EE Bonds

Before redeeming your bonds, it’s crucial to know their current value. This value isn’t simply the face value printed on the bond, especially if it is a paper bond and does not contain the exact value. Here’s how to figure out what your bond is worth:

For Electronic Bonds (Held in TreasuryDirect)

1. Log in to TreasuryDirect: Go to the TreasuryDirect website (www.treasurydirect.gov) and log in to your account using your credentials.
2. Access Your Account: Navigate to the “My Account” section.
3. View Holdings: You’ll find a list of all your electronic bonds. Each bond’s current value will be displayed.

For Paper Bonds

Finding the value of paper bonds requires a bit more effort. Here are the steps:

1. Locate the Bond Information: You’ll need the bond’s issue date, series (which should be EE), and face value. You can usually find this information printed directly on the bond certificate.
2. Use the TreasuryDirect Calculator: The U.S. Treasury provides a helpful tool on its website. Visit the Savings Bond Calculator page at www.treasurydirect.gov/savings-bonds/savings-bond-value-calculator/
3. Enter the Bond Details: Input the required information, such as the series, denomination (face value), and issue date of your paper bonds. You may need to input the month and year the bond was issued.
4. Calculate the Current Value: The calculator will then display the bond’s current redemption value. If your bonds are more than 30 years old, the bond no longer earns interest and the calculator will show a value that does not change over time.

Methods for Cashing in Series EE Savings Bonds

The method you use to cash in your bonds depends on whether they are electronic or paper bonds.

Redeeming Electronic Bonds (Held in TreasuryDirect)

Electronic bonds are redeemed directly through your TreasuryDirect account. Here’s how:

1. Log in to TreasuryDirect: Access your account at www.treasurydirect.gov.
2. Select the Bond: Navigate to the “ManageDirect” section and then to “Redeem Securities.” You’ll see a list of your electronic bonds. Select the bond(s) you wish to redeem.
3. Choose Redemption Method: You can typically choose to have the funds deposited directly into your bank account or sent to you via check.
4. Confirm the Transaction: Review all details carefully, including the amount and your chosen payment method. Then, confirm the redemption.
5. Receive Funds: The funds should be deposited into your bank account within a few business days or the check will be mailed to you.

Redeeming Paper Bonds

Paper bonds require a different process. Here are the options:

Option 1: Redeeming Through a Financial Institution

Many banks and credit unions will cash in paper savings bonds for you, especially if you’re already a customer. However, it’s best to call your bank in advance to confirm that they offer this service and their particular process.

1. Gather Your Bonds: Make sure you have all the paper bonds you intend to redeem.
2. Visit a Participating Financial Institution: Go to your bank or credit union that offers savings bond redemption services.
3. Provide Identification and Information: Present a valid government-issued photo ID, along with your savings bonds. You might need to complete a redemption form.
4. Receive Your Funds: The institution may offer cash, a check, or deposit the funds directly into your account, depending on their procedures. They will typically follow a series of verification protocols that may require them to send your bond to the US treasury

Option 2: Redeeming Through the Treasury Retail Securities Site

If your financial institution doesn’t offer bond redemption, or you prefer not to use them, you can send your paper bonds directly to the Treasury Retail Securities Site for redemption. This process is a bit more involved but is a good alternative.

1. Complete FS Form 1522: Download and fill out the FS Form 1522, “Application for Payment of United States Savings Bonds.” You can find this form on the TreasuryDirect website. Pay careful attention to all instructions and requirements outlined in the form.
2. Make Copies: Make a copy of the completed form and all bonds. The copies should be kept for your records.
3. Send Your Bonds and Form: Mail your bonds, along with the completed FS Form 1522 and a copy of the bond to the address listed on the form. It’s recommended to send them via certified mail to track delivery.
4. Receive Payment: The Treasury will process your request, and you will receive a check in the mail. The processing time may vary and depends on the volume of redemptions they are processing.

Important Note: If you’re sending your paper bonds to the Treasury, be sure to follow the instructions on the form and website precisely. Sending incorrect documentation or bonds may lead to delays in your payments.

What to Do With Bonds Registered to Someone Else

If your bond is registered to someone who is deceased or incapacitated, the redemption process might be more complicated. You’ll likely need to provide additional documentation, such as a death certificate or legal proof of guardianship. Contact TreasuryDirect or consult an estate planning attorney for assistance in these cases. They can provide guidance and support for these types of situations.

Tax Implications of Cashing in Savings Bonds

It’s essential to consider the tax implications before cashing in your Series EE bonds. The interest earned on these bonds is generally subject to federal income tax, but it is typically exempt from state and local taxes. There is a potential education tax exclusion for interest earned on qualifying bonds when used for higher education expenses. Here’s a general overview:

• Federal Income Tax: You’ll owe federal income tax on the interest earned when you cash in your bonds. The taxable amount is the difference between the redemption value and what you originally paid for the bond. This interest is considered income and is taxed at your regular income tax rate.
• State and Local Taxes: The interest on Series EE bonds is exempt from state and local taxes.
• Education Tax Exclusion: If you use the money from redeeming your bonds to pay for qualified higher education expenses, you may be able to exclude the interest from your federal taxable income, provided that certain requirements are met. Specifically, your modified adjusted gross income must fall below the set income limits, and you must be using the funds for education expenses. This exclusion is often called the “Education Savings Bond Program” or the “Qualified U.S. Savings Bond Income Exclusion.”

Seek Professional Advice: It’s always wise to consult a tax advisor or financial professional to determine your specific tax liability when redeeming your bonds. Tax laws are complex and subject to change, so personalized advice will be more beneficial.

Tips for a Smooth Redemption Process

• Keep Records Organized: Keep all your bond certificates and records in a secure place, such as a safe or safety deposit box. This will make the redemption process easier when the time comes.
• Track Interest Rates and Maturity: Familiarize yourself with your bond’s interest rate, as rates can vary. Also, pay attention to the bond’s maturity date. This will help you maximize returns.
• Start Early: If you have a large number of bonds to redeem, or a complex redemption situation, it’s best to start the process in advance, to avoid potential delays, especially if sending them to the Treasury Retail Securities Site.
• Verify Bank Information: Double-check the account and routing numbers when you provide them to ensure funds are deposited into the correct account. This is essential to avoid any problems when redeeming electronic bonds directly.
• Document Everything: Keep a copy of any forms you fill out, any bonds you send, and any correspondence with your financial institution or the U.S. Treasury. Proper documentation will make it much easier to trace and resolve any potential problems.
• Be Patient: Sometimes the redemption process can be slow, especially if you’re mailing in your paper bonds. Allow adequate time for processing.

Conclusion

Cashing in your Series EE savings bonds doesn’t have to be complicated. By understanding the process, determining your bond’s value, and choosing the right redemption method, you can access your funds with ease. Remember to always keep accurate records and to consult a professional for personalized tax and financial advice. With proper planning, you can use the funds from your bonds to achieve your financial goals. By following the steps and guidelines outlined in this article, you’ll have a much easier and more positive experience when redeeming your savings bonds.