Question about Redeeming Savings Bonds

[Fradika]

Good morning,

I have a question about redeeming EE & I Savings Bonds prior to maturity. What are the tax consequences of doing this? I understand that I will lose some interest (three months), what are the pros and cons of redeeming them?

[rickb]

Good morning,

I have a question about redeeming EE & I Savings Bonds prior to maturity. What are the tax consequences of doing this? I understand that I will lose some interest (three months), what are the pros and cons of redeeming them?

Treasury Direct has a page describing tax considerations for I bonds at http://www.treasurydirect.gov/indiv/res ... nsider.htm, and a similar page for EE bonds at http://www.treasurydirect.gov/indiv/res ... nsider.htm

At the most general level, whenever you redeem either these you have to pay the tax (federal only, they're state tax free) on the difference between what you originally paid and the redemption value - unless you chose to pay the tax every year (hardly anybody does this because you're not actually seeing the dividends every year).