Who pays tax on savings bonds after death?

After someone dies, the estate executor (or a voluntary representative) decides if all the accrued interest up to the death date goes on the decedent's final tax return, or if the beneficiary pays tax on all interest (pre-death and post-death) when the bond is redeemed; the beneficiary only pays tax on post-death interest if the executor reports the pre-death interest on the final return, otherwise the beneficiary pays tax on the full amount when cashed.

What happens to a savings bond when the owner dies?

When a savings bond owner dies, the bond either goes directly to a named surviving co-owner or beneficiary, bypassing probate, or it becomes part of the deceased's estate if no one else is listed, passing through a will or state law. If it's an estate asset, it's handled by an executor (or court-appointed representative) and distributed according to the will or intestacy laws, potentially requiring forms like FS Form 5394 for smaller estates or court involvement for larger ones. 

How to avoid paying taxes on savings bonds?

You can avoid federal income tax on U.S. savings bond interest (Series EE & I) by using the proceeds for qualified higher education expenses, meeting specific IRS income limits and age requirements, or by using them for state/local tax exemption, but the primary way to avoid federal tax is the education exclusion. You must file Form 8815, and requirements include using funds for tuition/fees, being over 24 when the bond was issued, and having income below IRS thresholds. 

Are savings bonds subject to inheritance tax?

Yes, you generally have to pay federal income tax on the interest from inherited savings bonds, but the tax bill depends on how the original owner handled taxes, with most deferring it, meaning you'll owe tax on all accrued interest when you redeem them unless the owner reported it annually or the estate pays it. The key is whether the original owner paid tax on the interest as it accumulated or deferred it; if deferred, you'll report the total interest on your tax return when you cash in the bond, but you can also potentially have the deceased's estate report that final interest on their final tax return. 

Are savings bonds taxable if inherited?

[the other choice is to pay the income tax on the interest each year, even though the interest is not received until the bond is redeemed]. As a result, when inheritors redeem inherited bonds on which the tax has been deferred, they will owe tax on all the interest that has accumulated.

How do I avoid paying taxes on inherited savings bonds?

How much money can you inherit without paying federal taxes?

In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate. It's a progressive tax, just like the federal income tax system. This means that the larger the estate, the higher the tax rate it is subject to.

Do savings bonds have to go through probate?

Typically, assets not in a trust, joint titling, or having a beneficiary designation that adds up to $184,500 would have to go through a probate. Because US Savings Bonds are federal assets, they do not have to abide by the California Probate Code.

How much tax will I pay on my EE savings bonds?

The interest on EE bonds isn't taxed as it accrues unless the owner elects to have it taxed annually. If an election is made, all previously accrued but untaxed interest is also reported in the election year. In most cases, this election isn't made so bond holders receive the benefits of tax deferral.

What is the best time to cash in savings bonds?

Most savings bonds stop earning interest (or reach maturity) between 20 to 30 years. It's possible to redeem a savings bond as soon as one year after it's purchased, but it's usually wise to wait at least five years so you don't lose the last three months of interest when you cash it in.

Is there a penalty for not cashing EE bonds after 30 years?

Series EE bonds mature after 30 years, at which point they stop earning interest. There is no penalty for holding them beyond this period. When cashed, the interest earned up to maturity is taxable income reported on IRS Form 1099-INT.

What are the disadvantages of savings bonds?

Cons

• Lower returns: Savings bonds may come with lower returns compared to other types of investments, especially during periods of low inflation. ...
• Inflexible: You can't cash in a savings bond until you've owned it for at least a year.

Why is my $100 savings bond only worth $50?

There are two primary reasons a bond might be worth less than its listed face value. A savings bond, for example, is sold at a discount to its face value and steadily appreciates in price as the bond approaches its maturity date. Upon maturity, the bond is redeemed for the full face value.

How much is a 30 year old $100 savings bond worth today?

A $100 savings bond's value after 30 years depends on the issue date, but for a Series EE bond from October 1994, it's worth about $164.12, having earned $114.12 in interest, as these bonds stop earning interest after 30 years. You can find the exact value using the TreasuryDirect Savings Bond Calculator by entering the bond's series, denomination, and issue date. 

Are EE bonds taxed as income or capital gains?

The Bottom Line. The interest you earn on EE savings bonds is subject to federal income, gift, estate, and excise taxes but is exempt from state and local income taxes.

Can banks still cash savings bonds?

Banks and credit unions can redeem savings bonds over the counter. Find out more about becoming an agent and redeeming savings bonds.

What are the disadvantages of EE bonds?

Inflation risk is another drawback of Series EE bonds. If the rate of inflation outpaces the interest rate earned on the bonds, the purchasing power of the bondholder's principal and interest payments may decline over time.

Does it matter whose social security number is on a savings bond?

The individual owns the U.S. Savings Bond if only their name appears on it. The Social Security Number shown on a bond is not proof of ownership. EXAMPLE: A U.S. Savings Bond title reads, “John Smith.” Only John Smith can cash that bond.

Which bonds are not federally taxable?

Income from bonds issued by state, city, and local governments (municipal bonds, or munis) is generally free from federal taxes. Market discount for municipal bonds is taxable interest income and not tax-exempt interest income. You will, however, have to report this income when filing your taxes.

How do I avoid paying taxes on inherited savings bonds?

You can avoid federal income tax on inherited Series EE or I savings bonds by using the interest to pay for qualified higher education expenses for yourself, your spouse, or a dependent (tuition, fees, books, computer), provided the original bond owner was over 24 when issued and income limits are met. Another option is rolling the proceeds into a 529 plan for future education. Otherwise, you pay tax on the deferred interest in the year you redeem them or the original owner's final year. 

What do I do with a savings bond of a deceased person?

The bond becomes payable to the estate of the deceased and probate of the estate may be required. If there is a court appointed representative, the bonds will be payable to the estate and administered according to the decedent's Will. If there is no Will, the bonds will pass according to the state intestacy laws.

Which of the following assets do not go through probate?

This includes life insurance policies, bank accounts, and investment or retirement accounts that require you to name a beneficiary. The proceeds are paid out directly to your named beneficiary when you pass away without having to pass through probate.

Can I give my child $100,000 tax-free?

As of 2024, this exclusion is set at $18,000 per individual. This means that you can give up to $18,000 in cash or property to your son, daughter, or granddaughter individually without concern for tax implications. If you and your spouse make a joint gift, the exclusion doubles to $36,000.

Does the IRS know when you inherit money?

How does the IRS find out about inheritance from parents? The estate itself is required to report asset transfers via various tax forms (like Form 706 for estate tax or Form 1041 for estate income). These forms alert the IRS to the assets.

What is the most you can inherit without paying taxes?

There's normally no Inheritance Tax to pay if either:

• the value of your estate is below the £325,000 threshold.
• you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club.