Key Takeaways
- The first Series I savings bonds were issued in September 1998 and stop earning interest 30 years later, in September 2028.
- An owner who never reported the interest owes federal tax on all of it in the year the bond matures, whether or not the bond has been cashed.
- A hypothetical retiree with $40,000 of unreported interest would owe $8,800 at an assumed 22% rate, with no state or local tax on top.
- Cashing some bonds in 2026 and 2027 spreads the interest over more tax years, which helps most when one big year would push part of it into a higher bracket.
I bonds are back in fashion. The Treasury’s new rate is 5.51% for bonds issued from Nov. 1, 2026, to April 30, 2027, up from 4.26%. That’s a lot more than most savings accounts pay.
But if you bought I bonds when they were brand new, you may have a big tax bill coming in less than two years.
The oldest I bonds hit 30 in September 2028
The Treasury first issued I bonds in September 1998, and an I bond earns interest for 30 years. So the very first ones mature in September 2028, and every later batch follows on its own 30th birthday: 1999’s bonds in 2029, 2000’s in 2030, and so on. Most owners have never paid a cent of tax on that interest, since the IRS lets them hold off reporting it until the year they cash the bond or it matures, whichever comes first. (Owners who chose to report the interest every year have been paying as they go.) For the oldest bonds, 2028 is the end of the line.
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Nobody has to cash them for the tax to hit
Suze Orman spent a good chunk of her Nov. 8 episode of Suze Orman’s Women & Money on I bonds, including what happens to owners who forget to redeem them. At 30 years, she said, electronic I bonds are “automatically redeemed for you,” and the money goes into a TreasuryDirect account that pays no interest. And whether or not you lift a finger, “They become taxable to you as ordinary income in that year.”
The 1998 bonds work a little differently, since the Treasury didn’t sell I bonds electronically until 2002. TreasuryDirect doesn’t cash a matured paper bond for you. It just stops earning interest. But the IRS taxes the interest in the year the bond matures, whether it’s been cashed or it’s still sitting in a drawer. That interest is everything the bond gained over what you paid for it, and that’s three decades of it.
What $40,000 of interest costs in 2028
Let’s take a hypothetical retiree who bought I bonds in 1998 and never reported the interest, which has built up to $40,000. Say all of it is taxed at 22%. That’s an $8,800 federal tax bill on 2028’s return, on interest the retiree may never have touched, stacked on top of whatever else they collect that year. Ouch.
The one bright spot is that I bond interest is exempt from state and local taxes, so the federal bill is the only one.
Spread it out while there’s time
Since the tax lands in the year a bond is cashed or matures, whichever comes first, an owner holding several bonds doesn’t have to take all $40,000 in 2028. Cashing roughly a third in 2026, a third in 2027 and the rest in 2028 puts about $13,333 of interest on each year’s return. An owner gains the most from spreading it out when a $40,000 lump would push part of it into a higher bracket, which is exactly what Orman warned the interest “might do to your tax bracket.” If all of it would be taxed at 22% either way, the $8,800 is the $8,800, and cashing early just gives up a little interest.
Holding on and leaving the bonds to your heirs doesn’t make the bill go away, either. Unless the interest goes on the owner’s final return, whoever inherits the bonds owes tax on all of it, earned before the death and after. With a 1998 bond, the heir’s deadline is the same 2028 maturity.
Today’s 5.51% bonds start the same 30-year clock
None of this is a reason to pass on the 5.51%. A bond bought this month follows the same rule, so its interest builds up untaxed until you cash it or it matures in November 2056. So it pays to think about which years you’ll cash new bonds on the day you buy them.
Frankly, if I owned 1998 I bonds, I’d want to pick the years that interest shows up on my return myself, and the chance to put some of it on 2026’s return ends on Dec. 31.
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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!
