Dear Dr. Don,
Once Series E/EE U.S. savings bonds mature and are no longer earning interest, is it possible to exchange these bonds to
Series H or Series I savings bonds and continue to defer any federal income taxes due on the interest income?
-- Mark Moreover
The Treasury stopped issuing Series HH/H savings bonds Sept. 1, 2004, and with that change, the opportunity to reinvest
or exchange savings bonds for tax-deferral reasons no longer exists.
For readers holding Series HH bonds issued between January 1980 and August 2004, the bonds earn interest for
20 years from the date of issuance, but the interest rate is subject to change 10 years from the issue date.
Series H bonds issued through December 1979 earn interest for 30 years from their date of issuance. All Series
H bonds will mature on or before the end of 2009.
Series E/EE savings bonds cannot be exchanged for Series I savings bonds to defer taxes. I don't recall a
tax-deferral option ever being possible between these two series. Here's what the TreasuryDirect
says about exchanging the two series:
Can EE/E Bonds be exchanged for I Bonds?
No, but you can cash the EE/E Bonds and use the proceeds to buy I Bonds. The interest earned on the EE/E Bonds must be reported
on your Federal income tax return for the year in which they were cashed.
While tax deferral can be an attractive feature of investing in savings bonds, it's important to know that the
deferral only lasts until a bond's final maturity. When choosing to defer income taxes on the interest income, the tax becomes
payable in the year that the bonds are redeemed or mature. Having a bond reissued can also trigger a tax liability.
Using the bond proceeds to fund qualified educational expenses can make the interest income tax exempt if the
bonds and the bondholder qualify under the Education Savings Bond Program. The TreasuryDirect Web page on education planning describes the requirements.