Answers to a Reporter’s Questions About Savings Bonds

I am frequently contacted by reporters to answer questions about personal finance topics. Below are three questions that I answered recently about U.S. savings bonds:

What happens to savings bonds if the original owner is deceased?

It depends on how the bonds are titled (this will be shown on the front face of the bond). If there is a named beneficiary, a bond will go directly to the beneficiary and is not part of the probate estate. If there is a surviving co-owner, that person becomes the sole owner of the bond. If there is no beneficiary or co-owner, savings bonds become an asset of the deceased bond owner’s estate, which will be settled via the terms of a deceased person’s will or state intestacy laws if there was no will. Note that there is no stepped-up basis on inherited savings bonds as there is with stock.

What should someone do if they have lost paper savings bonds?

The government has a six-page form for this: FS Form 1048 issued by the Bureau of the Fiscal Service. However, to complete the form, you must provide the issue date, face amount, and serial number of the bond. Therefore, it is imperative that you create a list with this information and keep it with your financial records. I personally use the savings bond inventory tool on the Treasury Direct website to create and update my bond inventory. Other people scan their bonds for a digital record or make a paper copy with a copier. FS Form 1048 also requires a signature guarantee by a financial institution such as a local bank. Wait to sign the form in the bank officer’s presence. 

I honestly do not know what happens if people do not have the necessary information required to complete FS Form 1048. I told the reporter to recommend that her readers contact the Bureau of the Fiscal Service, Forms Management Officer, Parkersburg, WV 26106-1328 and to provide whatever information and/or documentation they do have about the missing bonds. Questions on FS Form 1048 include: who had the bonds last and why? and when were the bonds last seen?

When you cash savings bonds in at bank, does the bank take out withholding for income taxes?

No, which is why people need to do proactive tax planning for tax years when they cash in paper savings bonds at a bank. As a reminder, savings bonds reach full maturity and stop accruing interest 30 years from their purchase. Some ways to “handle” the tax liability include over withholding on income from a paycheck, pension, or Social Security or making quarterly estimated tax payments to the IRS using Form 1040-ES. In addition, if people own multiple savings bonds that were purchased in the same year (e.g., 2001), they might consider cashing them in over several years to minimize the tax bite instead of cashing in all of the bonds in the same tax year. I am doing this myself, personally.