Cashing long-held E-bonds
I have Series E savings bonds of $100, $500, and for $25 dating from 1944. I have read that E-bonds purchased around this time should be cashed in, as taxable interest can be more than four times the original cost and more than three times its face value. -- M. H.
You should consider redeeming your old E-bonds, but for different reasons than you cite. The US Treasury has extended the maturity of E-bonds from their first issue for a maximum of 40 years. E-bonds purchased in 1941 will begin maturing after 40 years in 1981, and they will not be extended again. Thus, E-bonds with 40 years of life will no longer draw interest and should be cashed then if not sooner. Your bonds purchased in 1944 will mature after 40 years sometime in close to the multiples you note, but that is no reason in itself to cash them in. They will continue to earn 6 1/2 percent until they mature after 40 years, and the twice-a-year increases in redemption value are not taxed until you cash in the E-bonds. Then, all of the accrued interest is taxable at ordinary income rates. Or you may exchange. E-bonds for HH-bonds and defer paying the tax due at the time of the exchange.