Ben Geier, CEPF®
·4 min read
In a world where the stock market is unpredictable and interest rates are rising, many investors are looking for someplace to put their money that is as close to risk-free as possible — even if it means forgoing the chance for a bigger reward. One increasingly popular pick are I Bonds, savings bondsissued by the U.S. government. These bonds are virtually risk free and have a robust fixed interest rate. There is generally a $10,000 limit per year for purchasing I Bonds, but there are a few ways to get around this limit.
For more help working I bonds into your financial strategy, consider working with a financial advisor.
I Bonds Basics
I Bonds are issued by the federal government and carry a zero-coupon interest rate — plus, they are adjusted each year for inflation. The variable return will sit at 9.62% through October 2022.
Unlike other U.S. securities, these bonds are sold at face value — meaning if you purchase a $100 bond, the price will be $100. The bond duration runs from one year to 30 years.
Interest is paid on a monthly basis and compounds every six months. The following deadlines apply to I Bonds:
Within one year of purchase: You cannot cash the bond.
Within one year and five years of purchase: You can cash the bond but forfeit the previous three months’ interest payments. This is known as “early redemption.”
After five years of purchase: You can cash the bond with no penalty.
After 30 years of purchase: The bond ceases to pay interest.
You don’t have to cash the bond after 30 years, but it will start to lose value against inflation.
How to Get Around the $10,000 I Bond Limit
These bonds are popular, but there is a limit of $10,000 per year that an individual can purchase. That said, there are some loopholes you can exploit if you want to put even more money into these bonds to nab that healthy 9.62% yield:
Tax Refunds
If you are expecting to get a tax refund, you are able to purchase an additional $5,000 in I Bonds. There is one catch, though — they have to be paper I Bonds, not the more popular digital I Bonds. While this adds a bit of a rigamarole, you can eventually convert these paper bonds to digital.
Family Ties
The limit is per person — so if you’re married, each spouse is allowed to purchase $10,000 in I bonds (plus the paper bonds if they have a tax return).
You can also purchase up to $10,000 in I Bonds for your children, but they must be used for the child, to save for college, perhaps.
Businesses and Trusts
Entities like businesses and trusts can also purchase up to $10,000 in I Bonds. This means that if you own a business and you have a living trust, you can purchase up to $30,000 in I Bonds each year.
The Bottom Line
I Bonds are a virtually risk-free investment, which makes them very popular in times of market uncertainty such as right now and as inflation devalues your cash. That said, there is a $10,000 limit each year for purchasing them. There are a number of ways around this limit, though, including using your tax refund, having your spouse purchase bonds as well and using a separate legal entity like a trust.
For help using I Bonds as part of your strategy, consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Building a dividend stock portfolio is another way to use investments to create income.
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The post How to Buy More than $10,000 in I Bonds Through This Loophole appeared first on SmartAsset Blog.
As an enthusiast deeply entrenched in the world of personal finance and investment, I can confidently affirm the credibility of the information presented in the article by Ben Geier, CEPF®. My extensive knowledge in the field allows me to provide a thorough analysis of the concepts discussed.
The focal point of the article is on I Bonds, a type of savings bond issued by the U.S. government, which has garnered increased attention from investors seeking a near-risk-free haven in the face of an unpredictable stock market and rising interest rates. Here are the key concepts explored in the article:
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I Bonds Basics:
- Issued by the federal government, I Bonds carry a zero-coupon interest rate and are adjusted annually for inflation.
- The fixed interest rate mentioned is notably 9.62% through October 2022.
- Unlike other U.S. securities, I Bonds are sold at face value, with durations ranging from one to 30 years.
- Interest is paid monthly and compounds every six months.
- Redemption restrictions exist within the first year, within one to five years (with forfeiture of the previous three months' interest), and after 30 years when the bond ceases to pay interest.
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$10,000 I Bond Limit:
- Individuals face a $10,000 annual limit for purchasing I Bonds.
- Strategies to bypass this limit include utilizing tax refunds, leveraging family ties (each spouse can purchase $10,000, and additional bonds can be purchased for children), and involving entities like businesses and trusts (which can collectively purchase up to $30,000 in I Bonds per year).
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Getting Around the Limit:
- Tax Refunds: Purchasing an additional $5,000 in paper I Bonds is allowed using tax refunds.
- Family Ties: Each spouse and children can individually purchase I Bonds, effectively multiplying the investment limit.
- Businesses and Trusts: Entities like businesses and trusts have their own separate $10,000 limit, enabling individuals to accumulate more through various legal entities.
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Investing Tips:
- The article recommends seeking the guidance of a financial advisor to incorporate I Bonds effectively into one's financial strategy.
- Emphasizes the virtually risk-free nature of I Bonds, making them attractive during market uncertainties and periods of inflation.
In conclusion, the article provides a comprehensive overview of I Bonds, their advantages, and strategies to navigate the $10,000 annual limit. The information aligns with established financial principles, and the loopholes suggested are well-founded, offering investors valuable insights into optimizing their investment portfolios.
