Photo: Robert Trachtenberg
Q. When my father-in-law died, he left us almost $400,000 in U.S. savings bonds. This is a wonderful thing...but what do we do with them? They range from five to nearly 30 years old. We are debt-free with pension plans and IRAs, and we intend to retire in four years. Should we sit on the bonds? Cash them in right away? And how do we convert them into a better investment without paying a ton in taxes?

Suze: A wonderful thing, indeed! Your father-in-law has left you quite a legacy. You definitely don't want to cash in these bonds all at once; doing so would create a big tax bill. The interest income earned on U.S. savings bonds is free of state and local tax, but you owe federal income tax on the earned interest. It doesn't sound like you need to get at the principal quickly, so you should spread out this move over several years, in a way that makes sense for your overall financial plan.

And skirting high taxes isn't the only reason to hang on to the bonds: Some of them could be the best income generators you own, with interest rates far surpassing those you'd find today. For example, a Series EE bond bought now pays less than 1 percent interest. Yet Series EE bonds issued in the '80s and '90s often had guaranteed minimum payouts of 4 to 6 percent. Savings bonds earn interest for 30 years, so those bonds are continuing to grow your father-in-law's legacy.

The first step is to figure out what your bonds are earning. Visit to calculate each specific rate. Any bonds that are more than 30 years old—which means they've matured and have stopped earning interest—should be redeemed. Whatever else you cash in beyond that is up to you; just be sure to start with the lowest-yielding bonds.

What to Know About Inheriting Money