Key Takeaways
- Suze Orman warned that I bonds stop earning after 30 years, and the interest is taxed that year even if the owner never cashes them.
- Her example was $10,000 of I bonds bought in 2000, which could carry $50,000 of interest by 2030.
- For a single retiree with $100,000 of other income, that interest could add a $2,434.80 Medicare Part B surcharge two years later, at 2026’s figures.
- If owners cash old bonds a few at a time in the years before they mature, the interest gets spread out and can stay under Medicare’s surcharge lines.
New I bonds pay 5.51% through April 30, and Suze Orman spent a good chunk of the Nov. 8 episode of Suze Orman’s Women & Money on whether they’re worth buying now. Her answer was “not really.” But her sharpest warning was for people who already own I bonds they bought decades ago. If you’re on Medicare, it’s worth hearing.
Orman reminded listeners that electronic I bonds stop earning after 30 years. At that point they’re cashed automatically, and the money moves to an account at TreasuryDirect that pays no interest. The owner owes tax on all of it either way. “Taxes will be owed in that year,” she said. “They become taxable to you as ordinary income in that year.”
And for a retiree, the income tax isn’t the only cost, since Medicare sets your Part B premium from the tax return you filed two years earlier.
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$10,000 in 2000, $50,000 of interest in 2030
Orman’s own example was $10,000 of I bonds bought in 2000. She said they “will possibly yield you $50,000 of interest” by 2030, when they reach 30 years. So let’s take a hypothetical single retiree who bought exactly that and hasn’t thought about it since. Their other income puts their MAGI at $100,000 a year.
The IRS taxes savings-bond interest when you cash the bond or when it matures, whichever comes first, and most owners don’t choose to report it each year along the way. So none of those three decades of interest has hit this retiree’s tax return yet. In 2030, all $50,000 of it does at once, and their MAGI jumps from $100,000 to $150,000. The interest is free of state and local income tax, but it’s still federal taxable income.
Medicare bills the big year two years later
Higher earners on Medicare pay a monthly surcharge on top of the standard Part B premium. It’s set by their MAGI on the tax return from two years before. At 2026’s figures, a single filer pays:
- no surcharge at $109,000 or less
- $81.20 a month above $109,000
- $202.90 a month above $137,000
- bigger surcharges from $171,000 up
(For joint filers, the first two lines are $218,000 and $274,000.)
At $100,000, our retiree is under the first line and pays nothing extra. At $150,000, they’re well past $137,000. So the premium set from their 2030 return, the one they’ll pay in 2032, carries a $202.90 monthly surcharge at this year’s figures. That’s $2,434.80 in extra Part B premiums for the year ($202.90 x 12), on top of the federal income tax on the interest itself.
Since Medicare sets 2033’s premium from 2031’s return, the surcharge lasts one year if their income drops back to $100,000. Still, that’s a steep price for forgetting about a $10,000 bond.
Pick the year before the Treasury does
Fortunately, there’s something you can do about it. The interest is taxed when a bond is cashed or when it matures, so owners don’t have to wait until 2030 to find out which year takes the hit. If they cash some of the bonds each year before then, the interest is spread across several tax returns. At $100,000 of other MAGI, this retiree has $9,000 of room a year before crossing the $109,000 line. They have $37,000 of room before crossing $137,000 into the $202.90 band.
Frankly, $50,000 of interest on a $10,000 investment is a great problem to have. I’d just want to be the one who picks which year it shows up on my tax return. Anyone holding bonds from around 2000 has only a few years left to spread it over.
Of course, Orman’s $50,000 was a “possibly,” and the bonds’ real interest by 2030 will depend on inflation between now and then. And the 2032 premium will use the surcharge lines and amounts Medicare sets for that year, so the dollar figures will be different.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
