In the last few months, many clients have asked about purchasing I Bonds. As Bill Wendling explained in a previous article Should You Buy Bonds in 2022?, individuals are capped at $10,000 of I Bond purchases per year. However, there are a few creative ways to increase your exposure to the nearly risk-free asset.
One easy way to purchase additional I Bonds is through a revocable living trust. Many Bedel clients have either individual trusts or joint trusts. Each trust can purchase an additional $10,000 in bonds, so couples with individual trusts can buy up to $40,000 of I bonds per year, whereas the maximum amount couples with a joint trust can purchase is $30,000.
Each trust must open its Entity Account on the Treasury Direct website. It's a good idea to have your trust document in hand before you create the account because you'll need the trust date and registration. Most revocable trusts use the grantor's Social Security number as the tax ID. In the case of a joint trust, it's common to use the grantor's Social Security number, whose name appears first. The bank account used to fund the account does not have to be associated with the trust, an individual or joint account is suitable.
Another way to extend household I Bond ownership is to purchase bonds for your minor children. If you pursue this strategy, keep in mind that it is considered a gift. If you make additional gifts, such as 529 contributions, during the calendar year that total over $16,000, you must file a gift tax return. The gift tax return does not necessarily trigger additional taxes. It's a way to keep track of your lifetime gift tax exclusion (currently $12.06 million per person).
To purchase I Bonds for a child, you'll have to set up a Minor Linked Account on the Treasury Direct website. The bank account used to fund the account will also receive the proceeds at redemption. Therefore, the parent is responsible for moving the proceeds into an account for the child's benefit or spending the funds to benefit the child.
Finally, it's important to note that when a child reaches the age of majority (18 in most states), they have discretion over the I Bonds. That means they can redeem the bonds and spend the proceeds on whatever their heart desires.
There are only a few ways around the $10,000 annual purchase limits, but with current rates above 9%, it could be worth the extra time and effort.
