Series I Savings bonds have been a boon for people looking for a safe and lucrative place to park their money.
Money expert Clark Howard has been telling consumers that this is an opportune time to sell your Series I savings bonds, but like most things, it takes some strategy — and timing — for the transaction to be a success.
“Series I savings bonds are an amazingly complicated product that is designed to reward you where you don’t lose purchasing power vs. inflation,” Clark says. “They compensate you, whereas with normal savings, you’re going to fall behind inflation over time. With series I savings bonds, you stay with inflation.”
In the inflationary times we’ve been in, many people bought Series I savings bonds when they were nearly 10% a couple of years ago. But Clark says there’s a new strategy to employ now:
“Weirdly, it makes sense to consider selling them now, paying the tax and then rebuying Series I savings bonds,” Clark says.
What To Know Before You Sell Your Series I Savings Bonds
Did you catch that? You may need to pay taxes on your savings bonds earnings. It’s easy to miss any notifications from TreasuryDirect, the U.S. Treasury website that sells savings bonds.
The Internal Revenue Service (IRS) says, “Savings bond interest is exempt from state and local income tax. Savings bond interest is subject to federal income tax; however, taxation can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first.”
Treasury Direct says you have a choice of when you report the interest:
“Put off (defer) reporting the interest until you file a federal income tax return for the year in which you actually get the interest, or
report the interest each year even though you don’t actually get the interest then.”
Like most things, you may be looking for your 1099 to come via the U.S. postal mail, which is the typical way we get federal tax documents, but Uncle Sam’s financial arm — which is always apt to squeeze an additional fee or charge from your wallet — doesn’t do that.
“The U.S. Treasury that runs the IRS and the Series I savings program doesn’t send you a 1099 when you cash out a Series I savings bond, but when you don’t remember that you had interest on it and report it on your taxes, the U.S. Treasury, through the IRS, taxes you and charges you penalties and interest, as well as the tax for having not reported the income from the sold Series I savings bond,” Clark says.
So what does all this mean? The onus is on you to retrieve and report your savings bonds earnings via 1099.
How To Find Your 1099 From Selling Your Series I Savings Bond
To retrieve your 1099, you have to log onto your account with TreasuryDirect.gov, where you bought the Series I savings bonds, and you have to click through to find your tax document, print it out and then report it with your taxes.
You may receive an email from Treasury Direct that says, “Please check the Investor Inbox section of your TreasuryDirect account, and all linked accounts, if applicable, for important tax information.”
Screenshot via TreasuryDirect email
The email will also provide an instructional video on how to access your 1099. Here are the steps:
- Log onto TreasuryDirect.gov.
- Click on Investor Inbox in the menu up top.
- Click on Tax Statement Notification, which will allow you to see your tax documents on the screen.
- Click on the appropriate tax document.
Screenshot via treasurydirect.gov
Final Thoughts
Clark says it makes financial sense to sell your Series I savings bonds and rebuy them due to the current savings rates – but don’t forget to report your earnings.
“And if you sold Series I Savings bonds last year, and you’re like, ‘Oops, I didn’t report it,’ go do it and report it, even if you have to just send the IRS some extra money to cover that tax because every day you do it sooner, the less interest and penalties that you’ll owe,” Clark says.
Need help understanding savings bonds? Read our in-depth guide on Series I savings bonds that walks you through the steps of buying and selling them.
