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1 hour ago, The Z Machine said:

I don't think I'm ever going to get there...

Some of us have small incomes.

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2 hours ago, -OZ- said:

Just curious, what's significant about $250k? Or are you just using that to mean a somewhat significant amount? 

Personally, if you want to keep it easy I'd just go with 100% equities, broad market like VTSAX until my investments are 5x my annual income. Then consider going slightly more conservative but probably not make much of a move until I'm closer to 20x annual expenses.

If I remember right when I heard it explained, if you went with a typical 3-fund portfolio, for example (1 domestic equity mutual fund, 1 international equity mutual fund, and 1 bond fund), and did all the work and allocations, you'd track a basic Target-Date fund pretty closely and it wouldn't really matter which one you owned when you're under $250k. But above that limit, asset location, putting the highest-returning funds into the best tax-advantaged account, will have a measurable impact on returns. 

If someone's retirement fund options were a 401k and a Roth, and they evenly split $200K into the 401k and $200k into the Roth and completely invest both fully into a 2050 Target Date fund, for example, they would under-perform an allocation that split up the same amounts into optimizing bonds into the 401k and the higher-returning equities as much as possible in the Roth.

I think the $250k demarcation is the flex point at which it actually starts to matter, albeit only slightly. Once you're well above that number, then the impact is greater. Like, at $250k, re-allocating might return only ~1% more over 30 years(?), let's say, but at $500k it could mean 2-3%? At a million, 4-5% better return once you start making withdrawals?


OTOH, if you only have one type of account, either a roth or a 401k, then it doesn't really matter because you can't tax-optimize.  

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3 hours ago, The Z Machine said:
3 hours ago, -OZ- said:

until my investments are 5x my annual income

I don't think I'm ever going to get there...

You really should focus on investments vs spending (or projected spending if you expect it to be significantly different). Once you have 25x that projected spending number you're basically good to withdrawing 4% a year. I just find that framing much more helpful and it focuses on variables more in your control. Plus, incomes tend to rise through most working years so basing it on that variable makes it feel like a moving target. YMMV

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Posted (edited)

So a question for the finance experts here.
 

If one was able to save the usually recommended six months expenses in reserve cash (say 30-50k for the sake of the discussion), where is the best place to park said cash where you are maximizing any returns that money could earn but it was safe and relatively accessible if needed ( remember this is your emergency cash reserve not retirement).  Thanks.  

Edited by dkp993
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Yes more of the tax optimization stuff please. 

If I have a sizable regular brokerage account and I'm not maxing out the $64,500 each year into a superfunded Roth I should sell portions of the brokerage to pay myself a salary (if I have to) and use salary to max out the Superfund. Effectively moving the taxable account into a nontaxable account. Although paying capital gains as I'm selling it off though.  

Is that a no brainer or am I missing retirement or tax rules? 

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19 minutes ago, dkp993 said:

So a question for the finance experts here. If one was able to save the usually recommended six months expenses in reserve cash (say 30-50k for the sake of the discussion), where is the best place to park said cash where you are maximizing any returns that money could earn but it was safe and relatively accessible if needed ( remember this is your emergency cash reserve not retirement).  Thanks.  

Money market account is where I have mine at a very low, hardly anything, interest.  Interested to hear if I'm wrong. 

I did hear our financial advisor firm secured one at 2% that I've been meaning to look into. 

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20 minutes ago, dkp993 said:

So a question for the finance experts here. If one was able to save the usually recommended six months expenses in reserve cash (say 30-50k for the sake of the discussion), where is the best place to park said cash where you are maximizing any returns that money could earn but it was safe and relatively accessible if needed ( remember this is your emergency cash reserve not retirement).  Thanks.  

High yield saving accounts are only yielding about 50bps at most these days. You can probably squeeze some yield out of bank bonuses or other churning strategies.  You can put up to $10k a person into aforementioned I-bonds, but you would have to leave them for just over 11 months at minimum. 

A somewhat riskier strategy would be to sell OTM cash secured puts. The risk there of course is that the underlying falls so low you have to buy it. Do it in an index like SPY and at least it will be easy to sell it.

 

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34 minutes ago, dkp993 said:

So a question for the finance experts here.
 

If one was able to save the usually recommended six months expenses in reserve cash (say 30-50k for the sake of the discussion), where is the best place to park said cash where you are maximizing any returns that money could earn but it was safe and relatively accessible if needed ( remember this is your emergency cash reserve not retirement).  Thanks.  

I don't think you want any risk with it.  High yield savings or money market.  You don't want it in CD's where you may have to wait to get it out or take some penalty to get it out.  Having this piece of mind allows you to take a lot of risk with the rest of your money.  

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3 hours ago, jm192 said:

I don't think you want any risk with it.  High yield savings or money market.  You don't want it in CD's where you may have to wait to get it out or take some penalty to get it out.  Having this piece of mind allows you to take a lot of risk with the rest of your money.  

What kind of immediate $50k emergency am I facing that CDs or ibonds aren't liquid enough? 

And if it's that emergent, am I going to care that I have to sacrifice a couple of months of interest?

Not that CDs are worth it right now. Just curious the thoughts that lead down that path. 

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4 hours ago, Desert_Power said:

Do it in an index like SPY and at least it will be easy to sell it.

This was my initial thought but while the risk is low-ish it might still be too much.(?)

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43 minutes ago, Bob Sacamano said:

What kind of immediate $50k emergency am I facing that CDs or ibonds aren't liquid enough? 

And if it's that emergent, am I going to care that I have to sacrifice a couple of months of interest?

Not that CDs are worth it right now. Just curious the thoughts that lead down that path. 

I’ve never looked into ibonds.  What’s their deal?

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9 hours ago, firstseason1987 said:

If I remember right when I heard it explained, if you went with a typical 3-fund portfolio, for example (1 domestic equity mutual fund, 1 international equity mutual fund, and 1 bond fund), and did all the work and allocations, you'd track a basic Target-Date fund pretty closely and it wouldn't really matter which one you owned when you're under $250k. But above that limit, asset location, putting the highest-returning funds into the best tax-advantaged account, will have a measurable impact on returns. 

If someone's retirement fund options were a 401k and a Roth, and they evenly split $200K into the 401k and $200k into the Roth and completely invest both fully into a 2050 Target Date fund, for example, they would under-perform an allocation that split up the same amounts into optimizing bonds into the 401k and the higher-returning equities as much as possible in the Roth.

I think the $250k demarcation is the flex point at which it actually starts to matter, albeit only slightly. Once you're well above that number, then the impact is greater. Like, at $250k, re-allocating might return only ~1% more over 30 years(?), let's say, but at $500k it could mean 2-3%? At a million, 4-5% better return once you start making withdrawals?


OTOH, if you only have one type of account, either a roth or a 401k, then it doesn't really matter because you can't tax-optimize.  

I get what you're saying, tax matters.

But you're hitting my financial pet peeve. It's not 401k vs Roth.  It's traditional vs Roth. Many 401ks have a Roth option and IRAs can be either Roth or traditional. Way too many people don't understand this. (I'm sure you do, but others reading may not)

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Posted (edited)
8 hours ago, dkp993 said:

So a question for the finance experts here.
 

If one was able to save the usually recommended six months expenses in reserve cash (say 30-50k for the sake of the discussion), where is the best place to park said cash where you are maximizing any returns that money could earn but it was safe and relatively accessible if needed ( remember this is your emergency cash reserve not retirement).  Thanks.  

Churn bank bonuses or ladder CDs.

8 hours ago, Desert_Power said:

High yield saving accounts are only yielding about 50bps at most these days. You can probably squeeze some yield out of bank bonuses or other churning strategies.  You can put up to $10k a person into aforementioned I-bonds, but you would have to leave them for just over 11 months at minimum. 

A somewhat riskier strategy would be to sell OTM cash secured puts. The risk there of course is that the underlying falls so low you have to buy it. Do it in an index like SPY and at least it will be easy to sell it.

 

Personally, I ladder my EF:

1 month's expenses in checking 

2 months in savings

3 months regular brokerage, VTI 

I also have a line of credit I can access at 2% (M1+) which could cover 3 months if it came to that.

I have no problem taking the risk beyond 3 months, but my job and pension are about as secure as you can get. You might not want to take that risk.

Edited by -OZ-
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Damn if those Feds didn’t deposit that tax check quickly. I dropped it off at my post office on Monday and it’s already out of my account. They “drop” for the Southeast is now in Charlotte (used to be Louisville or  Lexington) but damn, the ink was barely dry. At least NC isn’t as on the ball. They sure didn’t deposit my son’s money yet. 

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1 hour ago, stbugs said:

Damn if those Feds didn’t deposit that tax check quickly. I dropped it off at my post office on Monday and it’s already out of my account. They “drop” for the Southeast is now in Charlotte (used to be Louisville or  Lexington) but damn, the ink was barely dry. At least NC isn’t as on the ball. They sure didn’t deposit my son’s money yet. 

I didn't do my taxes until May 10th as I usually owe.  Due to my wife quitting her job last February we actually received money back this year.  State had it to me on the 18th and Feds had it deposited on the 19th.  I was pleasantly surprised how fast they sent it as I heard there were backlogs on getting the refunds.

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4 minutes ago, yak651 said:

I didn't do my taxes until May 10th as I usually owe.  Due to my wife quitting her job last February we actually received money back this year.  State had it to me on the 18th and Feds had it deposited on the 19th.  I was pleasantly surprised how fast they sent it as I heard there were backlogs on getting the refunds.

I always owe. Probably could make W-4 changes but oh well, I just wait until the deadline to mail the check.

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7 hours ago, Bob Sacamano said:

What kind of immediate $50k emergency am I facing that CDs or ibonds aren't liquid enough? 

And if it's that emergent, am I going to care that I have to sacrifice a couple of months of interest?

Not that CDs are worth it right now. Just curious the thoughts that lead down that path. 

I always think of the emergency fund like I just broke my back in a car accident and I'm going to be laid up for the forseeable future.  I don't really want to have to do anything to access the money.  

I think the limited upside isn't worth any degree of penalty/work to get the money out.  I think in some instances, you can lose part of your principal if you withdraw too early.  But moreso:  50,000$ at 0.05% I can get on Chase right now is ~25$ a year.  Then you add in tax.  I guess there are some that are closer to 1%, but I don't want to put my money at a different financial institution, go through the process of getting out of the CD and then getting the money back to my checking.  

More hassle than I want.  And maybe some don't see it as a huge hassle.  But If I'm at the point I'm needing to break into that part of my finances--I've probably had something go wrong.  And I don't want any added stress.  

I think ibonds are pretty interesting right now as an investment.  I'm not sure it's where I want my emergency fund.  But interesting for sure.

 

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5 minutes ago, jm192 said:

I always think of the emergency fund like I just broke my back in a car accident and I'm going to be laid up for the forseeable future.  I don't really want to have to do anything to access the money.  

I think the limited upside isn't worth any degree of penalty/work to get the money out.  I think in some instances, you can lose part of your principal if you withdraw too early.  But moreso:  50,000$ at 0.05% I can get on Chase right now is ~25$ a year.  Then you add in tax.  I guess there are some that are closer to 1%, but I don't want to put my money at a different financial institution, go through the process of getting out of the CD and then getting the money back to my checking.  

More hassle than I want.  And maybe some don't see it as a huge hassle.  But If I'm at the point I'm needing to break into that part of my finances--I've probably had something go wrong.  And I don't want any added stress.  

I think ibonds are pretty interesting right now as an investment.  I'm not sure it's where I want my emergency fund.  But interesting for sure.

 

If I were laid up in bed for a significant amount of time I think I’d like to move money around just to have something to do.

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23 minutes ago, stbugs said:

I always owe. Probably could make W-4 changes but oh well, I just wait until the deadline to mail the check.

As long as you're not paying an underpayment penalty, I'd rather owe. This year was almost perfect, owing $300. 

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Posted (edited)
19 minutes ago, -OZ- said:

As long as you're not paying an underpayment penalty, I'd rather owe. This year was almost perfect, owing $300. 

I do pay that each year. It’s not a lot TBH so I haven’t worried much about it. I just calculated and it’s 0.4% so probably not worth it to pay more throughout the year.

Edited by stbugs
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Posted (edited)
37 minutes ago, -OZ- said:

As long as you're not paying an underpayment penalty, I'd rather owe. This year was almost perfect, owing $300. 

Yeah. We've had difficulty matching these up since the Trump tax cuts, but finally got it down to about $300 for last year. One of those situations where our taxes went down but our withholds had one WAY down

Edited by Desert_Power
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2 hours ago, stbugs said:

I do pay that each year. It’s not a lot TBH so I haven’t worried much about it. I just calculated and it’s 0.4% so probably not worth it to pay more throughout the year.

I assumed the penalty was more than that. Yeah, I wouldn't worry about it at all if it's that low.

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3 minutes ago, -OZ- said:

I assumed the penalty was more than that. Yeah, I wouldn't worry about it at all if it's that low.

It’s less the penalty wasn’t much and more that I owed way too much. There were a bunch of capital gains that was most of the taxes owed and I don’t believe those actually count, but still it’s usually still a little less than a percent. I’m a bit lazy on it but just like this year’s taxes my guesses at the start of 2020 would have been way off.

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2 hours ago, -OZ- said:

I assumed the penalty was more than that. Yeah, I wouldn't worry about it at all if it's that low.

The penalty is laughable.   I owed like 6k this year and it was 60 bucks and its been that way for years.    Its probably minor the gains I make on not paying those taxes sooner, but its mostly that I'm just lazy.   

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3 minutes ago, NutterButter said:

The penalty is laughable.   I owed like 6k this year and it was 60 bucks and its been that way for years.    Its probably minor the gains I make on not paying those taxes sooner, but its mostly that I'm just lazy.   

Good point.  With the way that equities have gone over the last decade, it would be better to take that $6k, invest it along the course of the year, then take the profits and pay the penalty with that.  Likely coming out way ahead.

I had to pay a $40-50 penalty this year too.

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Question for those of you on i Bonds:  Where are they held?

I've seen people say you buy it from the treasury.  Is their like a US treasury account where you log in and manage them??  Or do they send it to Fidelity etc.?  Do they send me paper bonds?

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53 minutes ago, jm192 said:

Question for those of you on i Bonds:  Where are they held?

I've seen people say you buy it from the treasury.  Is their like a US treasury account where you log in and manage them??  Or do they send it to Fidelity etc.?  Do they send me paper bonds?

You have to sign up for a treasury direct account: https://www.treasurydirect.gov

Not sure if it’s been mentioned but the annual $10k I bond limit is per SSN. So for a married couple you can buy $20k in I bonds yearly. 

The only way to get paper I bonds is by requesting as your tax refund or for overpayment. And it’s a $5k limit.

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57 minutes ago, D_House said:

You have to sign up for a treasury direct account: https://www.treasurydirect.gov

Not sure if it’s been mentioned but the annual $10k I bond limit is per SSN. So for a married couple you can buy $20k in I bonds yearly. 

The only way to get paper I bonds is by requesting as your tax refund or for overpayment. And it’s a $5k limit.

You can also open them in your kids names, I believe.

I should be able to say for certain next week.

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2 hours ago, Bob Sacamano said:

You can also open them in your kids names, I believe.

I should be able to say for certain next week.

Just do it by the end of the month for full month's interest. I've also been slowly working towards it with the wife.

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57 minutes ago, Desert_Power said:

Just do it by the end of the month for full month's interest. I've also been slowly working towards it with the wife.

I opened mine. Will open one for daughter by end of month. Wife's probably won't be until later in the year.

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11 minutes ago, Bob Sacamano said:

I opened mine. Will open one for daughter by end of month. Wife's probably won't be until later in the year.

Alright. You inspired me to figure out how to do my $10k tonight. Just sent it in :thumbup: 

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16 hours ago, D_House said:

You have to sign up for a treasury direct account: https://www.treasurydirect.gov

Not sure if it’s been mentioned but the annual $10k I bond limit is per SSN. So for a married couple you can buy $20k in I bonds yearly. 

The only way to get paper I bonds is by requesting as your tax refund or for overpayment. And it’s a $5k limit.

Is there a maturity (i.e. have to own for x years)?

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1 hour ago, rascal said:

Is there a maturity (i.e. have to own for x years)?

Can’t withdrawal for one year. 3-month interest penalty for withdrawing before five years. They mature in 20 years but can be extended for an additional 10 years.

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2 minutes ago, Juxtatarot said:

Can’t withdrawal for one year. 3-month interest penalty for withdrawing before five years. They mature in 20 years but can be extended for an additional 10 years.

I think, technically, it is a little less than a year. So if you do it before month-end you can withdraw on 6/1/22.

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On 5/21/2021 at 8:28 PM, Desert_Power said:

Just do it by the end of the month for full month's interest. I've also been slowly working towards it with the wife.

Would it be safe to assume inflation is going up and perhaps it is better to wait a few months or does the rate adjust?

 

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Posted (edited)
37 minutes ago, matuski said:

Would it be safe to assume inflation is going up and perhaps it is better to wait a few months or does the rate adjust?

 

Inflation rate

Unlike the fixed rate which does not change for the life of the bond, the inflation rate can and usually does change every six months.

We set the inflation rate every six months (on the first business day of May and on the first business day of November), based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy.

However, the change is applied to your bond every six months from the bond's issue date.  (The dates for these changes might not be May 1 and November 1.) When does my bond change rates?

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

ETA: If I had to forecast, I'd bet the rate starting November is closer to 4%

Edited by Desert_Power
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On 5/20/2021 at 8:50 PM, dkp993 said:

So a question for the finance experts here.
 

If one was able to save the usually recommended six months expenses in reserve cash (say 30-50k for the sake of the discussion), where is the best place to park said cash where you are maximizing any returns that money could earn but it was safe and relatively accessible if needed ( remember this is your emergency cash reserve not retirement).  Thanks.  

I have my emergency fund in a short term treasury ETF in a brokerage account,  I use SCHO, VGSH is similar.  Current yields are just under 1%, and under normal conditions they seem to fluctuate between 1-2%.  I can sell the shares and transfer to my bank within 5 days.  I use a separate account for my taxable investments.  

 

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Any of you guys on EE Bonds?

I think they're potentially useful.  

If you leave your money in the bonds for 20 years, the treasury guarantees the bond value to double at year 20.  Up until that point, you get 0.1% on it.  Which sucks.  But if you are in a situation to leave it parked for the full 20 years, then it works out to about 3.5x%.  Which is better than a lot of bond funds today.

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Posted (edited)
On 4/16/2021 at 2:00 PM, Juxtatarot said:

Rate on I-Bonds is expected to be 3.54% starting May 1. I’ll buy another $10,000 (max you can buy is $10,000 per year).

Incrementally over a decade ago I started transitioning my emergency fund to I-Bonds. They have performed much better than online savings accounts. Interest is tax deferred too which is nice since I never have “emergencies”.

:blackdot:

I've been looking into this. So this 3.54 rate is good though Oct (I believe). At which point thereafter rate changes for the 6-ish month period.

I've never understood how bonds work. So it's $10000/yr max investing (that's a calendar year and not based on date of initial investment, correct?). If I were to put $10000 down let's say today on I-bond, I'd get that 3.54 rate for the duration of 30 years or would that rate change (for this 10k invested) in November?

Edited by Craig_MiamiFL
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10 minutes ago, Craig_MiamiFL said:

:blackdot:

I've been looking into this. So this 3.54 rate is good though Oct (I believe). At which point thereafter rate changes for the 6-ish month period.

I've never understood how bonds work. So it's $10000/yr max investing (that's a calendar year and not based on date of initial investment, correct?). If I were to put $10000 down let's say today on I-bond, I'd get that 3.54 rate for the duration of 30 years or would that rate change for that 10k invested in November?

When you buy the bond, you get the initial rate for 6 months. So, if you buy today, you’d get it through October, if you bought in July, you’d get it through December, etc. When that six month period is over, you’ll get the rate published on November 1 for the next six months.  Rate changes continue on that schedule every six months based on rates declared May1 and November 1.
 

Yes, the $10,000 is per calendar year per social for bonds purchased electronically through Treasury Direct.

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On 5/26/2021 at 8:13 AM, Craig_MiamiFL said:

:blackdot:

I've been looking into this. So this 3.54 rate is good though Oct (I believe). At which point thereafter rate changes for the 6-ish month period.

I've never understood how bonds work. So it's $10000/yr max investing (that's a calendar year and not based on date of initial investment, correct?). If I were to put $10000 down let's say today on I-bond, I'd get that 3.54 rate for the duration of 30 years or would that rate change (for this 10k invested) in November?

 

think, if I remember right, that as long as you buy by the end of this month, you will get credit for the 3.54% for the whole of May, as if you purchased on 5/1. Since there's a holiday on Monday, you would need to purchase by tomorrow. 

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I have some EE bonds that will be reaching final maturity (no more interest) each month this year. They are $100 bonds (bought them for 50) and I am wondering what to do once they mature?

Can they be somehow rolled into something that I do not have to pay tax on them? I worried about cashing them in and then owing some taxes on them?

 

Any advice?

 

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