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Question for the Money Doctors

Question submitted on Mar 6, 2012.

Question

does the redemption of US Individual Retirement bonds create a taxable
event.

Answer

I will assume that you mean US Savings Bonds when referring to US Individual Retirement bonds.  If so, then continue to read.

Interest on E, EE & I bonds is paid at maturity or, if earlier, when redeemed.  Individual taxpayers generally defer reporting interest (and paying the related tax) until the year the bonds are redeemed or mature, whichever comes first.  However, a taxpayer can ELECT to pay tax as the interest accrues.  This is a special election and goes beyond the scope of this answer. 

Series HH bonds pay interest semiannually and tax is paid as you receive the interest. 

Remember, US Savings bond interest is subject to Federal tax but not state income taxes.


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