Working in UK, Should I Cash in US Savings Bond While I am here

I am going to ask my company provided professional tax advisor this but I thought someone here might know.

I am currently on a two year assignment in the UK and plan to return to the US when finished.  I have some US savings bonds as well as some mutual funds. 

I plan on using the Foreign Earned Income exclusion to make my ajusted income close to zero.  Does it make sense to cash those US bonds in while I am here (to a US bank account) and to use the money when I return for a down payment on a house or ring.  It seems that my marginal tax rate would be 10% as I would have no other income as opposed to if I was working back home where it would be 28%.

Does the same apply to mutual funds?

You will probably find that the company provided tax adviser will not be able to comment as this is a question about personal income and the adviser is paid by the employer to save them tax.

If you are tax equalised the strategy you suggest will make no difference.

If you are not tax equalised the strategy you suggest is spot on.  You should take personal income and capital gains while your marginal US tax rate is lower and you are (presumably) not subject to State taxes.  Conversely you should take capital losses and deductions such as charitable contributions once you are US resident again...

Basically, it was as I suspected.  (company provided tax advisor is provided as part of my expat package).  FWIW I am not tax equalised (not sure if this is good or bad.. they told me it would be good for me but I think it's going to be about a wash).

  Low marginal tax rate = good time to take personal income and capital gains.

Cashing in bonds... 

As long as you're not tax-equalised, then:

1)  Yes, you should be in a lower tax bracket so you'll save some bucks cashing them in while you're in the UK.
2)  But, if you bring the proceeds to the UK, you'll pay tax in the UK on the money.  It sounds like you might be in the 40% tax rate - ouch!
3)  If you cash them in, but leave the money in the US, you won't pay tax in the UK. 

If you are tax equalised, then you will pay standard US tax on the bonds as if you were still in the US.  You will not get the benefit of the lower tax rates afforded by the $80,000 exclusion.