Penalty for a Savings Bond Past Final Maturity

Your fully matured savings bonds do not get better with age.

Your fully matured savings bonds do not get better with age.

The U.S. Treasury doesn't much care if you hang onto a savings bond after it reaches final maturity. On the other hand, final maturity is very important to the Internal Revenue Service. The IRS wants the taxes due on your bond even if you haven't gotten around to cashing it in. Failure to do so could lead to a penalty.

No More Interest

All savings bonds issued since 1965 reach final maturity 30 years after issue. Bonds are issued by month, so a savings bond issued in June 1983, for example, hit its final birthday in June 2013. To the Treasury, final maturity means final value. A savings bond stops earning interest when it hits the 30-year point. You are not forced to cash in the bond at that time, but you will not earn any more interest, even if you hold the bond for several more years.

Taxes Must Be Paid

Even though the Treasury doesn't care if you cash in your fully matured savings bond, the tax rules require you to declare the interest you have earned and pay taxes on it. Savings bond rules give you the option -- which is the most widely chosen -- to let the interest accumulate tax-deferred. For the IRS, the deferral period ends either when you redeem the bond or it reaches final maturity, whichever comes first. If you failed to report the interest for the year the bond matured, you are liable for any taxes due and possibly a tax penalty.

Amending a Tax Return

To claim the interest and pay the taxes on a savings bond that matured in a previous year, you cannot just add the interest to this year's tax return. You get the pleasure of filing an amended return -- using the Form 1040X -- for the year when the bond reach final maturity. If you haven't paid the taxes on a matured bond, do not delay filing the amended return. The longer you wait, the bigger the chance you will be hit with a tax penalty or that the penalty you already owe will get even larger.

Handling a Late 1099-INT

You will not receive a Form 1099-INT for a savings bond until you redeem the bond. However, with a bond past its maturity, you should have reported the interest for the tax year when the bond matures. Then, possibly years later, you cash the bond and get a 1099 for the interest. The 1099-INT will show that the interest was earned in the year the bond reached final maturity.


About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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