EE Bonds: Hold or Sell?

Reader Question:  My question is about EE U.S. savings bonds. I have bonds purchased in the late 1980’s and all are due to mature in 2016-17. The rate on these bonds is 4% and needless to say the accumulated interest is more than the face value of the bonds.  My plan is to give these bonds to my grandson (age one) to help with his college education. My son (his father) and I are co-owners of the bonds and it would be a tax burden on either one of us if we redeemed them. The proceeds would not be needed for 15 years after the last one matures in 2017.  My question is, is there anything we can do (i.e. cash the bonds and put the proceeds in a tax deferred account without the tax burden) or are we stuck with just letting the bonds be idle for 15 years and then pay the taxes on the accumulated interest.

Answer:  My colleague, Beth Moody, CFP® had this to say, “According to the Treasury Direct website, it’s only bonds that are issued after 1989 that would be eligible for the education exclusion for the interest. Assuming these bonds were issued in 1986 and 1987, they would not qualify for this potential tax savings on the interest.  Since these bonds do not accumulate interest beyond thirty years, it appears your best bet is to cash them out and reinvest the net proceeds.  You should seek guidance from your CPA as to the timing as you may want to spread the redemptions over a couple of tax years.”

Beth further recommends that you consider using the proceeds to contribute to a 529 college savings plan (visit  Assuming you are residents of Alabama, you’ll receive a tax deduction on your state income tax return (up to $5,000 for single filers; $10,000 for joint filers).  Money within a 529 plan grows tax deferred and if used for qualified education expenses, withdrawals are tax free.

Reader Question:  I have been seeing on the internet a lot recently about an imminent collapse of our nation’s banking system.  Some of the material claims that certain U.S. Senators have withdrawn all of their funds from their personal bank accounts obviously knowing a financial disaster is about to be upon us.  The 90-something percent of me that is not a conspiracy theorist believes this is just about certain individuals wanting to sell their newsletters recommending their investment advice in order for all of us to prepare for the doom and gloom scenario.  However, in recent weeks I’ve talked with a number of people (some very educated, financially-savvy, etc.) who claim they have closed their bank accounts and even gone as far as burying the cash in their backyard.  Do you know the origin of these rumors concerning the banks and what are your thoughts concerning the actions of ones I’ve mentioned above?

Answer:  There is a persistent rumor that our economy is going to fall into the abyss this October due to a U.S. currency collapse.  Scare mongers are proclaiming that in their October 20th meeting, the International Monetary Fund (IMF) will remove the US Dollar as the world currency reserve causing an apocalyptical collapse of the dollar and our way of life.  It is true that China is pushing to have their currency officially included in the basket of world currency reserves (called Special Drawing Rights or SDRs) managed by the IMF but I suspect the impact will be minimal.  It’s not helping that former Senator Dr. Ron Paul is headlining TV ads proclaiming that the end is near!  It turns out he’s selling a book and investment subscription service.  One final thought: burying cash in your back yard is just plain silly.