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Rules for cashing in U.S. savings bonds

Dorothy Rosen -- The Dollar DivaDear Dollar Diva,
How and where do I cash my Series E savings bonds? -- Vickie

Dear Vickie,
You should be able to cash those bonds at your local bank; you just need to show proper identification and prove that you're entitled to cash them. By the way, these rules also apply to cashing in Series I savings bonds, not just the Series E variety.

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If the bonds are in your name
If the bonds are in your name, you're automatically entitled to cash them at most financial institutions; all you have to do is show proper identification. If you've been an active customer for at least six months, it's a slam dunk; your account is your identification and the bank should cash as many as you want with no questions asked. For Series I and E savings bonds purchased after Feb.1, 2003, you must hold them for one year before cashing them in.

If you're not a bank customer, you'll have to show your driver's license or some other form of identification, and they'll only let you cash $1,000 worth of bonds at a time. The bank should accept a driver's license as identification, but just to be on the safe side call ahead and ask.

You can also set up an online account with the U.S. Department of Treasury's TreasuryDirect Web site. Here you'll be able to buy savings bonds by debiting a checking or savings account, manage and redeem your bonds.

If the bonds are in someone else's name
If you don't own the bonds, you need to prove that you have a right to cash them. For example, if the bond owner died and you are the beneficiary, you'll need to identify yourself and bring a certified copy of the owner's death certificate to the bank.

If the bonds belong to your children and they're very young, you can sign for them. Let's pretend your name is Vickie Doe, and your 3-year-old daughter, Lottie Doe, owns the bonds. You would write the following on the back of each bond:

"I certify that I am the parent of Lottie Doe with whom Lottie Doe resides (or to whom legal custody has been granted). She is 3 years old and is not of sufficient understanding to make this request.
-- Vickie Doe on behalf of Lottie Doe"

Again, it's always a good idea to check with the bank to find out what its particular requirements are before you do anything. Visit the U.S. Treasury's Web site for more information on Series E savings bonds.

Think before you cash in those bonds
If your Series E bonds were issued before May 1, 1995, they're earning either 4 percent or 6 percent a year. If you're lucky enough to be holding the 6 percent variety, you may want to hang on to them; that kind of interest on a tax-deferred, no-risk bond is hard to come by today. To find out what the bond is earning and what it's worth, plug your numbers into the U.S. Treasury's savings bond calculator.

Another thing to think about is how much interest income you'll have to report to the IRS the year you redeem the bonds. Slapping a large chunk of income on a tax return can have serious consequences. It can push you into a higher tax bracket, make part of your Social Security taxable, prevent you from making an IRA contribution and reduce or eliminate the amount you can deduct for personal exemptions and itemized deductions. Talk to a tax professional if you think this could happen to you.

DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting, from the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen has more than 15 years of experience in the financial arena, serving in Illinois and Florida as a certified public accountant, financial consultant, expert witness and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that serves individuals and small businesses.

-- Updated: May 18, 2005





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