Reader C tips us off to a loophole which allows locking in more than $10,000 at the current high 7.12% I Bonds interest rate via the bond gifting system. It only works for who have a partner or friend to work with.
READ FIRST: US Treasury Bonds Rate Set To 7.12% (I Bonds)
You can gift someone else I Bonds with no purchase limit (link). While the recipient can only buy/receive $10,000 in a calendar year, using the gifting option locks in the current interest rate for whenever the recipient will eventually get the funds. Until that times it sits in your ‘gift box’.
For example: Jane and Dave are a married couple with shared finances. Each of them has already bought $10,000 in I Bonds for 2022. Jane can buy an additional $10,000 (or whatever amount) during March 2022, with the gift being fully executed to Dave in January 2023. Since Jane bought the I Bonds during March 2022, the bonds will begin accruing interest at the March 2022 rate and the 12-month lock-up period will be calculated based on the March 2022 date.
Dave can also do the same and buy $10,000 in bond gifts in March 2022 which will be given to Jane in January 2023.
You probably don’t want to buy huge volumes of gifts since it’ll then take years before the recipient will be able to receive the gift and break the bond since the recipient can only get $10,000 per year. In all likelihood the bond rates will go way down in the coming years, and you’ll have to keep the funds locked into I Bonds at the low rate until you slowly execute the gifts $10,000 per year.
But buying an extra $10,000 to lock in the current rate and to execute the gift in 2023 sounds like an interesting idea. (Even buying $20,000 for your 2023 and 2024 allotment makes sense to me, but there might be an additional tax Form 709 to fill out if you are doing with this with anyone other than your spouse.)
Important Note: You can only gift or receive an I Bonds gift to/from your personal I Bonds account. It does not work with I Bond business accounts or trusts.
Here’s a how-to from Treasury Direct (pdf) on how to go about gifting I Bonds.
Before going the gifting route, there are more basic ways of increasing your threshold above $10,000:
- Buy $10,000 for each person, e.g. two spouses can buy $10,000 for each and you can buy $10,000 for each child
- Get $5,000 back in paper bonds as a tax overpayment refund
- Buy $10,000 for each business entity EIN you own
- Create a revocable living trust which allows buying an addition $10,000
Personally I did $20,000 between 2021 and 2022. I finally got around to opening a Treasury account in my business name and found it easier than anticipated. Maybe I’ll get another $5,000 in paper bonds from tax overpayment which would bring me up to $35,000 in I Bonds. I’m not planning on opening additional businesses, trusts, or going the gifting route, but I found the option intriguing and thought it worth sharing.
You can watch a video from Treasury Direct on how to buy I Bonds as gifts at this link.
