Is there a penalty for cashing savings bonds after maturity?

Is there a penalty for cashing savings bonds after maturity?

If you hold these bonds after the date of final maturity, it opens the door to a possible tax penalty and/or fine for you. IRS Publication 550 states that once that savings bond passes its final maturity date, the interest accumulated over the life of the bond must be reported on that year’s federal tax return.

How do I avoid taxes on a mature savings bond?

One way you might avoid owing taxes on the bond interest is to cash your EE or I bonds before maturity and use the proceeds to pay for college. If you meet this set of rules, the interest won’t be taxable: You must have acquired the bonds after 1989 when you were at least age 24. The bonds must be in your name only.

What happens when a savings bond matures?

Savings bond interest accrues. When a savings bond matures, you get the principal amount plus all of the accrued interest. After the maturity date the bond stops earning interest. If you own savings bonds in electronic form through Treasury Direct, log on to your account and follow the instructions to redeem them.

Do you have to pay taxes on matured savings bonds?

Is savings bond interest taxable? The interest that your savings bonds earn is subject to: federal income tax, but not to state or local income tax. any federal estate, gift, and excise taxes as well as any state estate or inheritance taxes.

Do you pay taxes on matured savings bonds?

Owners can wait to pay the taxes when they cash in the bond, when the bond matures, or when they relinquish the bond to another owner. Alternatively, they may pay the taxes yearly as interest accrues. 1 Most owners choose to defer the taxes until they redeem the bond.

Can I have taxes withheld when cashing savings bonds?

If you hold a Treasury bond with us, we can ease your tax burden by withholding up to 50 percent of your interest earnings. TreasuryDirect allows you to specify online the percentage you want us to withhold.

How much tax do you pay on EE savings bonds?

The bond accrues interest even after reaching its face value, but at “final maturity” (after 30 years), interest stops accruing and must be reported. The interest on EE bonds is not taxed as it accrues unless the owner elects to have it taxed annually.

Do I have to pay tax on inherited savings bonds?

Taxes on Inherited U.S. Savings Bonds If the decedent didn’t include any of the interest in his income and estate, you must pay tax on the interest when you cash out the bond. Any interest that accumulates after the decedent dies is always included in your income when the bond is cashed out.

What is the federal tax rate on EE bonds?

Multiply the interest earned on the bond by your federal tax rate. For example, if you earned $1,200 in interest on a Series E bond and your tax rate is 28 percent, your tax on the bond is $336, or $1,200 times . 28.