Penalty for a Savings Bond Past Final Maturity

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 yet gotten around to cashing it in. Failure to do so could lead to a penalty.

Bonds are issued by month and their maturity dates depend on the type of bond you have and when you purchased it. Series E bonds bought between May 1941 and November 1965 mature in 40 years, but if you bought the same type of bond between December 1965 and June 1980, it would mature in 30 years. All EE bonds mature in 30 years.

So a Series E savings bond issued in June 1988, for example, will hit its final birthday in June 2018. As far as the Treasury is concerned, final maturity means final value. A savings bond typically stops earning interest when it hits the 30-year point. You're not forced to cash in the bond at that time, but you won't earn any more interest, even if you hold the bond for several more years.

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 when 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.

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.

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.