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I inherited $70,000 in savings bonds from my late mother. How do I avoid tax problems when cashing them in?

A reader needs help wrangling with complicated IRS rules Got a question about taxes or investing? You can write me at MarketWatch, 

I have many mature EE savings bonds that I inherited from my mother as her pay-on-death beneficiary. 

I have been redeeming a few every year to avoid paying a large amount of taxes at one time.

What should I do if I want to redeem them now and pay the tax — or have it withheld — and not wait until I file my tax return in April? 


Dear Susan, 

Savings bonds are supposed to be a simple, secure investment, but 30-plus years later, it probably doesn’t seem that way. EE bonds (and E bonds before them) were the Series I bonds of their day – popular gifts for birthdays and college savings, but not so prevalent today when everyone is chasing after high-yield investments. 

Fortunately, you have the certificates and a clear designation of ownership. A lot of people forget about paper savings bonds, and then either don’t pass them along to their heirs or don’t provide instructions for them if they are found stashed in a box somewhere. In those cases, the bonds end up as unclaimed funds, and you have to go through the steps to find them and claim them as a legitimate heir, which might be cumbersome. The Treasury’s tool for this is aptly named “Treasury Hunt.”

But here’s one thing you should know: The tax on E/EE bonds is due when you cash them or they reach their full maturity (regardless of whether you hold them longer than that).