Transcript
1
00:00:00,000 --> 00:00:02,609
Ralph: Have you recently inherited savings bonds from a loved one.
2
00:00:02,939 --> 00:00:04,589
And you're wondering what to do next.
3
00:00:05,009 --> 00:00:07,680
Are you concerned about the possible tax implications?
4
00:00:07,979 --> 00:00:08,759
You're not alone.
5
00:00:09,180 --> 00:00:18,630
Join me, as we navigate the ins and outs of inheriting savings bonds, and we're going to explore how to honor your loved one's legacy while stewarding this inheritance wisely.
6
00:00:18,810 --> 00:00:20,400
So stay tuned for a great show.
7
00:00:50,567 --> 00:00:52,097
Welcome to our financial Friday show.
8
00:00:52,127 --> 00:00:53,597
I'm so glad you chose to join us.
9
00:00:53,597 --> 00:00:56,567
I just want to thank you for listening and supporting this program.
10
00:00:56,867 --> 00:01:00,647
I'm coming to you from the Estep Farm in the Saggio Accounting studio today.
11
00:01:00,917 --> 00:01:05,327
Let me put on my podcaster hat and put down the overalls and the adding machine.
12
00:01:05,377 --> 00:01:08,827
And let's get into some financial wisdom from a Christian perspective.
13
00:01:09,217 --> 00:01:11,947
And don't forget to subscribe to the show and join our email list.
14
00:01:12,157 --> 00:01:15,787
You do that at askralphpodcast.com . So you don't miss tomorrow's show.
15
00:01:16,177 --> 00:01:22,237
When we're going to discuss the pros and cons of credit builder loans, you might not even know what they are, but tomorrow we're going to talk about that.
16
00:01:22,509 --> 00:01:24,487
So let's start with today's Bible verse.
17
00:01:25,267 --> 00:01:31,117
Before we dive in, let's take a moment to reflect on this first from Proverbs chapter 13, verse 22, and it says this.
18
00:01:31,447 --> 00:01:34,687
A good man leaves an inheritance to his children's children.
19
00:01:35,257 --> 00:01:36,667
Boy, that's a lot to think about.
20
00:01:37,150 --> 00:01:40,207
When a loved one, entrust us with inheritances like savings bonds.
21
00:01:40,537 --> 00:01:42,697
It's both a blessing and a responsibility.
22
00:01:43,117 --> 00:01:49,507
Today, lets unpack what you do when you inherit savings, bonds, and the important tax considerations to keep in mind.
23
00:01:49,957 --> 00:01:51,817
This is some complicated stuff, folks.
24
00:01:52,237 --> 00:01:54,487
First off what exactly are savings bonds?
25
00:01:54,547 --> 00:01:56,647
A lot of people don't know what they are, what they are.
26
00:01:56,647 --> 00:02:02,677
Is there a type of debt security issued by the us department of treasury to help pay for the government's borrowing needs?
27
00:02:03,217 --> 00:02:08,587
And if you're like me, you're seeing a ton of that going on as our government continued to spend without any avail or concern.
28
00:02:09,217 --> 00:02:12,127
When you buy a bond, you're essentially loaning money to the government.
29
00:02:12,307 --> 00:02:13,117
You're the lender.
30
00:02:13,387 --> 00:02:16,777
Which they promise to pay back with interest over a set period of time.
31
00:02:17,257 --> 00:02:20,137
Now many people invest in savings bonds because they're safe.
32
00:02:20,557 --> 00:02:24,487
They're low risk investments backed by the full faith and credit of the us government.
33
00:02:24,847 --> 00:02:26,527
That's sort of what the draw is.
34
00:02:26,527 --> 00:02:27,007
Folks.
35
00:02:27,337 --> 00:02:31,647
People believe that they're safe, low risk because they're Backed up by the us government.
36
00:02:32,067 --> 00:02:34,377
So what happens when you've inherited savings bonds?
37
00:02:34,377 --> 00:02:35,007
Now, what.
38
00:02:35,427 --> 00:02:37,257
So here are some key steps to take.
39
00:02:37,677 --> 00:02:39,177
Number one first thing you need to do.
40
00:02:39,477 --> 00:02:42,207
You need to identify the type of savings bonds.
41
00:02:43,107 --> 00:02:45,357
Before I did this episode, I wasn't even aware of all this.
42
00:02:45,687 --> 00:02:50,547
There are several different series of savings bonds each with their own unique features and rules.
43
00:02:50,907 --> 00:02:56,307
The most common ones you may inherit are what called series EE and series I bonds.
44
00:02:56,757 --> 00:03:02,877
So let's start with series EE series EE bonds are the most common and earn a fixed rate of interest for up to 30 years.
45
00:03:02,877 --> 00:03:04,107
So the interest rate is fixed.
46
00:03:04,497 --> 00:03:05,937
For a term up to 30 years.
47
00:03:06,477 --> 00:03:10,737
I bonds on the other hand, earn a combination of a fixed rate and an inflation rate.
48
00:03:11,187 --> 00:03:13,527
Making them a popular hedge against inflation.
49
00:03:13,827 --> 00:03:14,877
So what am I saying there?
50
00:03:14,877 --> 00:03:19,287
Basically what I'm saying is they give you an interest rate, but that interest rate is indexed.
51
00:03:19,287 --> 00:03:22,107
As inflation goes up, the amount of interest you're paying goes up.
52
00:03:22,677 --> 00:03:26,397
And knowing the bond series is crucial for understanding its maturity.
53
00:03:26,877 --> 00:03:29,307
The interest rate and the tax treatment.
54
00:03:29,817 --> 00:03:30,987
So that's the first thing.
55
00:03:31,017 --> 00:03:34,167
Number two thing you want to do determine a Bond's current value maturity.
56
00:03:34,767 --> 00:03:48,837
The next step is figuring out the current value of the inherited bonds and whether they fully matured yet savings bonds typically stop earning interest at their final maturity, which is usually between 30 and 40 years after issuance, depending upon the series.
57
00:03:49,167 --> 00:03:55,977
So at some point, if you inherited these bonds and they've already reached their maturity, they're not gaining any additional interest.
58
00:03:56,367 --> 00:03:58,977
So you might ask Ralph how do I find out about their value?
59
00:03:59,217 --> 00:03:59,727
Here's the deal.
60
00:04:00,087 --> 00:04:01,827
You can look up the bonds issue, date.
61
00:04:02,127 --> 00:04:03,447
And calculate its maturity.
62
00:04:03,807 --> 00:04:11,997
There's online tools available at treasurydirect.Gov that lets you input the bond's serial number and the denomination to get its current values.
63
00:04:11,997 --> 00:04:12,777
You can go right to that.
64
00:04:12,777 --> 00:04:15,927
Treasury direct.gov put in the bond serial number.
65
00:04:16,227 --> 00:04:19,047
And the amount of the denomination it'll give you its current value.
66
00:04:19,257 --> 00:04:23,127
So once you've done those two things, you've identified what kind of bonds they are and their value.
67
00:04:23,397 --> 00:04:26,727
The third step is you've got to decide whether to cash out or keep the bonds.
68
00:04:27,207 --> 00:04:28,827
This is one of the biggest decisions.
69
00:04:29,427 --> 00:04:33,207
It's whether to cash in the inherited bonds now, or keep them until maturity.
70
00:04:33,207 --> 00:04:34,527
If they've not already matured.
71
00:04:35,367 --> 00:04:37,737
This really depends on your current financial needs and goals.
72
00:04:37,737 --> 00:04:38,937
That's really what we're talking about here.
73
00:04:38,937 --> 00:04:51,207
Folks, If the bonds are no longer earning interest and you have high interest debt to pay off or an important financial goal, cashing them out to put those funds to work may make sense to you, especially if they're not earning any additional interest.
74
00:04:51,207 --> 00:04:52,887
It's just a dead investment at that point.
75
00:04:53,247 --> 00:04:58,137
Now on the flip side, if the bonds are still earning interest and you don't have a pressing need for the money.
76
00:04:58,527 --> 00:05:01,087
You could hold on to them and let the interest rate keep accruing.
77
00:05:01,107 --> 00:05:04,167
But again, you've got to look at what is the interest rate that that's paying.
78
00:05:04,437 --> 00:05:06,087
Versus what you can get in the market.
79
00:05:06,417 --> 00:05:12,177
So what do I say here spend some time in prayer and wise counsel to determine the best approach for your situation.
80
00:05:12,657 --> 00:05:17,637
So once you've done those three things, the next thing you do is understand the bonds tax treatment.
81
00:05:17,907 --> 00:05:19,227
So let's talk taxes.
82
00:05:19,257 --> 00:05:20,607
Everybody's favorite topic.
83
00:05:21,097 --> 00:05:23,607
One of the most common questions around inheriting savings?
84
00:05:23,607 --> 00:05:25,467
Bonds is what are the tax implications?
85
00:05:25,717 --> 00:05:27,217
I get this question quite a bit.
86
00:05:27,547 --> 00:05:32,707
The good news is that inheritance itself is not considered taxable income at the federal level.
87
00:05:33,157 --> 00:05:35,197
So just getting those bonds.
88
00:05:35,467 --> 00:05:37,627
By inheritance doesn't trigger a tax event.
89
00:05:37,627 --> 00:05:39,457
However, this is the important part.
90
00:05:39,727 --> 00:05:42,787
The interest earned on the bonds is taxable income.
91
00:05:42,967 --> 00:05:48,637
Now here's where it gets a little more complicated, depending upon elections made by the original bond holder.
92
00:05:48,637 --> 00:05:54,127
That was the person who originally had it person you inherited from that interest may be taxable in the year.
93
00:05:54,157 --> 00:05:54,877
It was earned.
94
00:05:55,297 --> 00:05:59,617
Or the year in which it's redeemed or matures, this is where things get a bit tricky folks.
95
00:06:00,097 --> 00:06:05,677
If the decedent that's, the person who passed away, had been reporting the interest annually on their tax return.
96
00:06:05,917 --> 00:06:12,787
Then you, as you inheritor fancy word for the person who got the bonds only need to report interest earned after the date of death.
97
00:06:12,817 --> 00:06:22,237
So in other words, if they've been reporting the interest every year as they go, the only interest you're going to have to report and pay taxes on is whatever interest was earned after they passed away.
98
00:06:22,297 --> 00:06:23,167
Now here's the catch.
99
00:06:23,587 --> 00:06:30,667
However, if the decedent and use the cash basis, method of accounting, which basically means they show the income when they received the cash.
100
00:06:30,967 --> 00:06:43,597
And deferred that reporting interest until the bonds are cashed in, then you may be responsible paying income tax on all of the interest earned from the time the, a bond was originally issued up to when you cash them in or when they mature.
101
00:06:44,047 --> 00:06:47,017
Even if most of the interest accrued during the decedent's lifetime.
102
00:06:47,287 --> 00:06:48,457
So what am I saying there?
103
00:06:48,607 --> 00:06:49,567
Here's a great example.
104
00:06:49,747 --> 00:06:55,147
Let's say your loved one bought a $10,000 bond that is worth $20,000 in 30 years.
105
00:06:55,597 --> 00:07:05,717
If they made the election on the cash basis to only report that interest, when they cash in the bond, Then you're going to have to pay tax on the earnings of that whole $10,000.
106
00:07:05,717 --> 00:07:09,347
So it started 10, it reached 20, the earnings are 10,000.
107
00:07:09,347 --> 00:07:18,807
So you're going to pay tax on all 10,000 as compared to if they reported the interest on an annual basis, they've already paid interest on all of those earnings up to the time of death.
108
00:07:19,097 --> 00:07:22,637
This is known as the income in respect of a decedent.
109
00:07:22,907 --> 00:07:24,047
It's a fancy way of saying it.
110
00:07:24,047 --> 00:07:27,137
And there are some provisions to try to help ease the potential tax burden.
111
00:07:27,587 --> 00:07:30,107
Like a deduction for any estate taxes paid on that income.
112
00:07:30,287 --> 00:07:35,657
So if that is the situation, you can take a deduction for any estate taxes paid on that income.
113
00:07:36,107 --> 00:07:39,497
But that's where you need to invest some time with a professional.
114
00:07:39,707 --> 00:07:43,997
The other factor is whether any of the bonds are eligible for the education tax exclusion.
115
00:07:44,417 --> 00:07:50,227
If bonds are purchased after 1989, by someone age 24 or older, interest may be tax-free.
116
00:07:50,257 --> 00:07:55,597
If the bond is used for the owner, their spouses, or the dependents qualified higher education expenses.
117
00:07:56,047 --> 00:08:00,187
But here's the thing, folks, there are some strict income limits and other requirements to qualify.
118
00:08:00,457 --> 00:08:12,027
So that's why I always say my recommendation will be to sit down with a qualified tax professional, like myself Or a financial advisor to walk you through specific situation and create a customized plan for managing the tax impacts of your inherited bonds.
119
00:08:12,817 --> 00:08:14,947
Don't let the complexity deter you though.
120
00:08:15,277 --> 00:08:18,067
With some practical planning, you can minimize the tax hit.
121
00:08:18,157 --> 00:08:19,207
Hey, that's what we all want to do.
122
00:08:19,567 --> 00:08:21,907
And maximize the blessings of this inheritance.
123
00:08:22,237 --> 00:08:26,497
And number five, consider your bonds role in your overall financial plan.
124
00:08:27,037 --> 00:08:28,087
This is the key folks.
125
00:08:28,447 --> 00:08:32,737
You gotta lastly, take some time to consider how this inheritance fits into your bigger financial picture.
126
00:08:33,067 --> 00:08:34,507
What are your financial plans?
127
00:08:34,807 --> 00:08:36,157
What are your goals and dreams?
128
00:08:36,157 --> 00:08:37,987
What has God laid on your heart?
129
00:08:38,617 --> 00:08:42,427
Any inheritance, like this could be the seed money to finally get out of debt.
130
00:08:42,877 --> 00:08:43,507
It could do.
131
00:08:43,807 --> 00:08:51,607
Wonders to start that business you feel called to, You could save it for your children's education or you could increase your generosity and impact for God's kingdom.
132
00:08:52,087 --> 00:08:56,377
On the other hand, you may decide the most prudent thing is to reinvest the funds for your longterm future.
133
00:08:56,737 --> 00:09:02,077
Perhaps rolling the inheritance into a diversified portfolio, align with your goals and values either way.
134
00:09:02,077 --> 00:09:03,757
You need to speak to someone who can help you.
135
00:09:04,267 --> 00:09:06,727
The important thing is being intentional.
136
00:09:07,117 --> 00:09:09,277
And seeking God's wisdom each step of the way.
137
00:09:10,027 --> 00:09:20,587
Now, before we wrap up I want to remind, all of our listeners visit our podcast page, do that at askralphpodcast.com there you can leave a review, share your thoughts, or even send us a message with questions for future episodes.
138
00:09:20,947 --> 00:09:23,827
We are building our calendar for the next few weeks.
139
00:09:23,827 --> 00:09:30,157
So if you've got an idea that you want to talk about, Please send me an email or go to our website and record a message while you're there.
140
00:09:30,187 --> 00:09:34,687
Make sure you join our email list that we can send you our daily email to let you know what's going on on the show.
141
00:09:35,227 --> 00:09:39,577
And if you find you have a specific financial concern, you can also schedule a consultation.
142
00:09:39,607 --> 00:09:40,807
They right there from the website.
143
00:09:41,257 --> 00:09:42,607
And here's the thing I want you to do.
144
00:09:42,967 --> 00:09:47,797
If you know someone who's inherited savings bonds, or has questions about them, please share this episode with them.
145
00:09:47,977 --> 00:09:50,737
And I hope that you're getting value from our podcasts in general.
146
00:09:50,737 --> 00:09:52,627
So please share the podcast with them as well.
147
00:09:53,077 --> 00:09:56,287
In summary, if you've inherited savings, bonds, here's what you want to do.
148
00:09:56,287 --> 00:10:01,807
Number one, identify the bond series and the maturity number two look up its current value.
149
00:10:02,047 --> 00:10:04,687
Number three, decide whether to cash in or keep the bonds.
150
00:10:04,897 --> 00:10:10,777
number four, understand potential tax implications and number five, make a plan for how to best use the inheritance.
151
00:10:11,197 --> 00:10:14,407
The truth is folks by following these steps and committing the process to prayer.
152
00:10:14,707 --> 00:10:19,027
You can honor your loved one and steward their gift wisely.
153
00:10:19,357 --> 00:10:20,407
That's all for now, folks.
154
00:10:20,677 --> 00:10:24,457
I hope this episode has brought you some clarity and practical next steps.
155
00:10:24,457 --> 00:10:27,277
If you find yourself inheriting savings bonds as always.
156
00:10:27,607 --> 00:10:32,287
Reach out to a trusted tax or financial professional to discuss your specific situation.
157
00:10:32,677 --> 00:10:40,537
If you found this info helpful, again, hop over to our askralphpodcast.com for more episodes and resources on honoring God with your finances.
158
00:10:40,537 --> 00:10:41,287
Remember this?
159
00:10:41,737 --> 00:10:46,477
And inheritance is a gift and an opportunity to create a legacy of stewardship.
160
00:10:46,807 --> 00:10:47,797
And generosity.
161
00:10:48,067 --> 00:10:52,117
I love how Proverbs chapter 20 verse 21 in the message translation puts it.
162
00:10:52,537 --> 00:10:54,907
Quick wealth is not a blessing in the end.
163
00:10:55,387 --> 00:10:58,327
An inheritance like savings, bonds doesn't have to burn a hole in your pocket.
164
00:10:58,717 --> 00:11:02,407
prayerfully consider how God may want you to use it for his purposes.
165
00:11:02,437 --> 00:11:07,447
Well, thanks for tuning in stay financially savvy, my friends and God bless you and have a great weekend.
