Saving bonds are useful investments, both because of the guaranteed returns they generate and the minimal risk they carry. However, some investors may wish to cash savings bonds once they reach maturity to use the funds elsewhere. You can cash a savings bond upon maturity, or even before it's mature, and place the money in an individual retirement account (IRA), but you can't transfer the bond directly into an IRA at any point in time.
Savings bonds function as stock in the federal government, which pays a fixed rate of return on an investor's money for a defined period of time. Most bonds, such as federal EE savings bonds, mature in 20 years. This means that a $100 bond, which costs $50 to purchase, will be worth $100 20 years from the date of sale. Bond holders can sell their bonds for cash at any time after 12 months, although interest penalties apply to bond sales within five years of the initial date of sale. After 20 years, savings bonds continue to gain value for an additional 10 years.
Unlike employer-sponsored retirement savings plans, which deduct contributions from paychecks and grow as employers match employees' contributions, workers contribute their own money to IRAs after receiving it as pay or from other sources. IRA contributions are tax deductible, which provides a tax savings and an incentive to contribute. If you sell bonds once they reach maturity and invest the money in your IRA, your tax deduction can help offset the income tax you must pay on the interest your bond earned between the time you acquired it and the time you sold it.
As of the time of publication, the maximum annual contribution limit to an IRA if $5,000 for workers under age 50, and $6,000 for workers age 50 or older. These limits provide one reason to keep some retirement savings in bonds. For example, if you receive a $7,000 bonus from your employer, you may choose to contribute the maximum $5,000 to your IRA and use the remaining $2,000 to purchase savings bonds with a total face value of $4,000. Once those bonds reach maturity, you can sell some of them to fund another $5,000 contribution, while allowing the rest to continue earning interest.
Some retirement savers prefer to manage their own retirement portfolios. This may include buying and selling stock, managing bonds, contributing to an IRA and paying into an employer-sponsored 401k savings plan. IRAs, along with 401ks and other retirement savings plans, invest their money into a variety of products, including stocks and bonds. This means that you can place your money directly into an IRA rather than buying bonds to grow your money before contributing, and still gain some of the benefits of savings bond investments.
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