True. Seems like a viable loophole from the comments.
My understanding of the rules is TreasuryDirect can unilaterally decide that you went over the limits and refund your principal without interest. So maybe they can say the limit is not arbitrary and your attempt to circumvent it is prohibited. But I suppose there’s no gain without risk 
On a separate note, I also just read that they’re not responsible for any loss on your account resulting from, for example, someone using your password. I now wonder if the banking / credit card regulations we’re used to (i.e., account holder is not responsible for unauthorized transactions) apply to TreasuryDirect.
My problem with your entire post is that I’m able to offer it only one like. It deserves more.
Very smart post.
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How much risk is there? It’s not like someone can just log in and add a new bank account to withdraw all your funds to. A scammer could mess with you some, but the actual harm would be relatively minimal.
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thx! will convert unless any advantage to keeping the paper ?
Thanks for the heads up everyone. I had a couple of expiring CDs which I bought I bonds with. I have been reading about these for years on here and finally took the plunge. Setup the account and bought them earlier this week.
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So I bought 10K for my child. A few days ago I realized that the interest will be child’s unearned income, and learned that unearned income is taxable if it exceeds $1100 – I’d either have to file a return for the child or add it to mine. Is this correct?
If so, it may be advantageous to report the interest income annually, because that would avoid taxes, right?
And now I’m unsure how much more to buy for him next year, because the full 10K will likely cause his interest income in 2022 to exceed $1100 if inflation doesn’t subside for the May 1st rate. I may have to create a calculator and wait until April to have a better probability.
Yes, for a kid with no income, you get the first $1100 of unearned income tax free. The next $1100 of unearned income is only taxed at 10%, and if you get into that second $1100 bracket you’ll have to file a (simple) return for the child. After that, the kiddie tax rules kick in for any further unearned income and it gets taxed at your marginal rate. In this case, it likely makes sense to report the interest annually if that will result in no taxes anyway.
You do this by filing a tax return the first year and making that election for the bonds, attaching a statement to the return saying this (the default treatment is to defer interest to maturity). You’d just file the first year return anyway and then don’t need to do the others if the income is below the reporting limit. Be aware that if you make this election, it effects all your I/EE bonds and lasts until you ask for (and presumably get) permission from the IRS to revert back to the deferral tax approach.
https://www.irs.gov/pub/irs-pdf/p550.pdf (see page 7-8)
You must use the same method for all Series EE, Series E, and Series I bonds you own. If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1 [ie deferral is default].
Choice to report interest each year. The choice to report the accrued interest each year can be made either by your child or by you for your child. This choice is made by filing an in- come tax return that shows all the interest earned to date, and by stating on the return that your child chooses to report the interest each year. Either you or your child should keep a copy of this return.
Unless your child is otherwise required to file a tax return for any year after making this choice, your child does not have to file a return only to report the annual accrual of U.S. savings bond interest under this choice.
Also, even if you don’t do that, there are ways to cash out EE/I bonds tax free for paying for education or contributing to a 529 plan for your kid. These have income limits, but if you think you’ll be under those, you probably don’t have to worry about whichever way you do it.
https://www.bogleheads.org/wiki/I_savings_bonds#Tax-free_growth_for_Qualified_Education_Expenses
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That’s my plan.
A child can have up to $2200 unearned income before it gets taxed at your rate. So yes, you may be filing a return for him and pay a small tax bill if interest exceeds $1100, but $20k in bonds are unlikely to exceed that $2200 level where it starts to get complicated.
Be aware, if the child has any other savings bonds, you determining to claim interest annually applies to all his bonds.
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Awesome, thank you, xerty. I didn’t realize it was laddered, thought the full amount would suddenly get taxed at my marginal rate.
All my child’s bonds, not mine, right? I planned to defer mine until maturity/sale (cause it doesn’t make much difference) and do the child’s annually.
I suppose I could contribute my I-Bonds to my 529 (I’m the owner), just not with the current MAGI limits. My child’s I-Bonds would have to go into a custodial 529 (child is the owner), right? Whose MAGI would it be in this case?
Right, I didn’t know I had this choice until I read your post about electing to report it annually. Much obliged.
Scripta wrote " I planned to defer mine until maturity/sale (cause it doesn’t make much difference) and do the child’s annually. " Depending on how many years you buy bonds and when you sell, you may have a bunch of interest to report and pay in one year. In 2001 my SO and I bought 60k worth of 3% fixed rate I bonds. We deferred for the first 15 years. I then realized at 30 years , I would have a ton of interest to report. With my lower reportable income after I retired, we converted hers 1 year and mine the next to pay annually. Also, after 30 years if you don’t cash them in all interest is reportable that year. I never thought I’d hold them all 30 years when I bought them, but they have been a very good fixed income home for me. I just started buying them again last year.
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You’re not wrong, I just don’t see myself holding onto them for long, especially since the fixed component is 0%. I only buy when the rate is good (relative to savings accounts) and I happen to be sitting on more cash than I know what to do with in the near term.
Right, all under that SSN. It becomes an issue if, for instance, grandma bought Junior a savings bond when he was born. That bond’s interest would also need to start being claimed annually.
We all hope this situation resolves itself soon. But I am assuming we’ll end up holding these bonds at least until the early redemption penalty goes away at the 5 year mark. I really hope you are right, but I dont see savings rates beating inflation any time soon.
How can I find out if there are other bonds with his SSN? Pretty sure grandma hasn’t, but if there’s a way to find out without asking her, that’d be nice. On the other hand I’m pretty sure I didn’t give his SSN to anyone, but still.
I may need some of that cash before then. The 3-mo penalty is being penny smart and pound foolish in the presence of better opportunities, yes? 
That is the key in my view.
Provided neither you nor the child’s mother released his/her SS number you should be OK.
This on the assumption there is not some other family member privy to that data.
Bump Made it to https://www.cnbc.com/2021/12/10/couples-can-fight-inflation-with-7point12percent-risk-free-interest-on-40000-.html
on the subject of buying as gifts, the limits per SSn are the same right? Can buy some for my minor kids too, So 40K/yr for 4
Only downside I see this 7% wont last (“transitory!”) and my inertia will let this money sit there like I did from 2005…
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Yes, $10k per person per year, plus more if you get business entities or trusts if you really want. You can also front load buying now by buying gifts and delivering them $10k/year to the recipient if you really want to own say $30k worth for each kid. You could buy 3 blocks now, give one this year, give one next year, and give the last in 2023. Earns interest just the same while it sits as an undelivered gift, but of course you can’t redeem it until you can deliver it to the owner.
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hmm frontloading earns interest now… Interesting. ( early redemption is not a problem. Late is )
7% for 6 months, and a roaring start to what will set the rate for the second 6 months. I wouldn’t front 10 years worth of bond deliveries, but I think it’s a fairly safe bet that the net return for 2-3 years will be plenty competitive to anything else with a similar risk profile, even if the rate crashes for the back half of that timeframe.
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Good guideline. Will do 2 years X 4 SSNs.
Boglehead thread even uses multiple logins but not sure why if the limit is per SSN?
https://www.bogleheads.org/forum/viewtopic.php?t=306297
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