Cashing a Series EE bond

[mwest141]

My grandmother, who will be turning 100 years old in Dec 2022, bought savings bonds years ago where i, her grandson, is the beneficary.  the bond is POD.  She has nearly spend her life savings over the past 10 years living in a nursing home.  I am wondering if she could cash that bond in to help to cover her living expenses and what would the tax implications be for her.  She has no income other than SSA which is approx 13K/year.

[KarenL4]

Hi,

First, I am sorry that you are having to deal with this. It sounds like your grandmother owns the Series EE Treasury bond.  If she owns the Treasure Series EE bond, the income will be taxable to her federally, and not taxable at the state level. While taxable, though, she may not have to pay any tax on it, depending on her income and the amount of the interest.  Here is a link that explains about taxation on Series EE bonds and who is responsible for the tax (just in case I misunderstood the ownership).

Whether or not your grandmother will actually owe any tax will depend upon her income. In 2022, the federal standard deduction will be $14700 for a single person over 65 (more if your grandmother is blind or married).  Depending on income, social security is not taxed and the maximum taxable income is 85% of the total social security.  Here is an article that explains more.  Depending on the amount of interest, it is possible that your grandmother will not have any tax due.  

Feel free to post a new question with more information if you need more help. Please cheer below if this was helpful.

Best,

Karen

[mwest141]

Hi Karen, thank you for your response. 

You are correct in that my grandmother is the owner of the Series EE bonds and I am the beneficiary.  To your point, i understand that she will be the one having to pay taxes, if any, based upon her total income for the year.  She has very little income (just her IRA RMD which is been around 2k/year) outside of her monthly SSA.  If i understand correctly, you are saying that if her income, less SSA, when added to the interest gained from the bonds being redeemed is less than the STD deduction of 14,700 in 2022, then she will not have to pay any taxes.  is that correct? 

I wanted to thank you again as this is very helpful for me as her caregiver and  POA of her finances. 

thank you

Mark

[KarenL4]

Hi, 

Almost.  Some portion of social security becomes taxable if sheearns enough.  Here's some more information from the IRS:

Your (social security) benefits may be taxable if the total of (1) one-half of your benefits, plus (2) all of your other income, including tax-exempt interest, is greater than the base amount for your filing status.

The base amount for your filing status is:

• $25,000 if you're single, head of household, or qualifying widow(er),"

So, if when you apply that formula her "base amount" is less than $25K, her social security will not be taxable. If it is taxable, the amount that is taxable ranges from 50%-85% based upon her income.   This article from AARP does a pretty decent job of explaining how much is taxable.

If her 2022 taxable income (including the taxable portion of social security) is less than $14,700, she won't have to pay federal taxes.

Hope this helps!

Best,

Karen