I bond to IRA?

November 2, 2006 6:21 AM

Is there a way to roll over U.S. government bonds into an IRA tax-free?

I have a decent amount of money in federal I bonds. At the time, I thought I'd need access to that money in the next few years, but now I'd like to put at least some of it into a tax-deferred retirement account instead. Is there any way to do this without taking a tax hit (i.e., paying taxes on the bond interest)?

If not, is there a better plan than leaving the money where it is now?

posted by myeviltwin to Work & Money (3 answers total)

IRA contributions, up to the appropriate contribution limit, are tax-deductible. You take the contributed amount off your income for the year when filing your taxes, and thus don't pay taxes on that amount of income. The source of the money does not matter - I bonds, your piggy-bank, whatever, so there's no need (or possibility) of rolling-over your I bonds into an IRA.

Roll-overs are for money which is already in a tax-deferred status - transfers from your 401K plan to an IRA plan, for instance. The I bonds are not tax-deferred money.

It certainly seems reasonable to me to open an IRA, and redeem enough I bonds each year to make sure you are maxing out your IRA contributions for the year.
posted by jellicle at 6:46 AM on November 2, 2006

Yes but you ARE going to pay taxes on the interest generated from cashing in those bonds, regardless of where you put it. 4000 is the max contribution, so anything over that is not eligible for IRA and is taxable.
posted by spicynuts at 6:52 AM on November 2, 2006

I Bonds (post 1990) can be cashed in tax-free if used to pay for qualified education expenses. There is an upper income limit. The same logic lets you roll I Bonds tax free into a qualified tuition program or a Coverdell education savings account.

I am not your accountant and this is not financial advice.
posted by meehawl at 7:11 AM on November 2, 2006