I am 60 years old, retired, and have no reportable income until 62, when I will start drawing Social Security. I've had series EE savings bonds that earn 4 percent since 1991, but in 2021 they will mature. Would cashing those in early give me a more favorable tax event than earning the remaining 24 months of interest? I plan on cashing in half of the bonds in 2017 and the other half in 2018.
You have a two-year period where you have an opportunity to realize taxable income up to $10,400 for single individuals or $20,800 for married couples filing jointly and have no federal taxable income. A common tax strategy is to use up as much of the free tax bracket as you possibly can. If you wait until maturity and are receiving Social Security, depending on the taxable value of the bonds redeemed you may cause part of your Social Security benefits to become taxable. Series EE bond interest is not taxable to Pennsylvania.
I recommend using as much of the tax-free bracket as possible, either realizing interest income or possibly making elective IRA distributions prior to receiving your Social Security benefits. I would also suggest investigating Social Security claiming strategies before settling on taking benefits at age 62.
Answered by: David S. Markle, CPA, is a CPA financial planner with Markle Wealth Management in Danielsville, Pa.