20 Nov What to do with savings bonds, tax burden

Q. I have several hundred dollars of savings bonds maturing in the same three years. How can I cash them so I don’t fall into a higher tax bracket? Do I have to pay RMD on these? Can I roll these bonds over to other bonds or some vehicle and not pay tax, and how? I am 73 and retired.
— Old Lady in Lawrenceville

A. You have several options for the bonds that are maturing.

You don’t have to cash them in, said Brian Power, a certified financial planner with Gateway Advisory, LLC in Westfield.

“Final maturity is 30 years after the original date of purchase,” Power said. “After 30 years, the bond stops earning interest.”

If cashing them in all in the same year puts you into a higher tax bracket, Power said, you can figure out how much you should cash in each year over multiple years to keep you from entering the higher tax bracket.

On your question about an RMD, that’s short for a “required mandatory distribution” from an IRA.

“If you own the bonds inside your IRA, you’ll still be required to take your RMD,” Power said. “If the bonds are held directly in your name versus inside an IRA, no RMD is required.”

Power said you can’t roll over your bonds to other bonds or some other vehicle without first cashing them in and generating taxable income, and we know that’s what you’re trying to avoid.

“To redeem your paper bonds, I would start with the financial institution that you do your banking with,” he said. “Most financial institutions will help you redeem your bonds.”

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The post was originally published in November 2017.