My previous posts covered buying I Bonds with your tax refund, buying I Bonds in a trust, buying I Bonds in your kid’s name, and buying I Bonds for your business. Let’s look at another way to buy I Bonds this time: buying them as a gift. For background on I Bonds in general, please read How To Buy I Bonds.
Gift Box and Delivery
You buy I Bonds as a gift in two stages: buying and delivering.
You must give the recipient’s name and Social Security Number when you buy a gift. The recipient doesn’t need to have a TreasuryDirect account at this time. Only a personal account can buy or receive gifts. A trust or a business can neither buy a gift nor receive a gift.
The bonds you buy as a gift go into a “gift box.” You can’t cash out the bonds stored in your gift box. This is analogous to you going to a store and bringing back the gift to your closet. The gift already has the recipient’s name permanently etched on it. You can’t steal the gift for yourself.
The recipient doesn’t know you bought a gift for them until you deliver the gift to them. This is analogous to bringing the gift from your closet when you visit family. The recipient must have a TreasuryDirect account now to receive the delivery. You’ll need the recipient’s account number to deliver a gift.
I Bonds stored in your gift box are in limbo. You can’t cash them out because they’re not yours. The recipient can’t cash them out either because the bonds aren’t in their account yet.
There’s a minimum wait of five business days between buying and delivering to make sure your bank debit clears. There’s no maximum stay in the gift box. You can pre-purchase gifts and wait to deliver them at a much later time. You can also choose to deliver gifts in bits and pieces as opposed to in one lump sum.
The principal amount of delivered gifts counts toward the $10,000 annual purchase limit of the recipient in the year of delivery. You can still buy gifts for others even if you already bought the maximum this year for yourself.
You can buy a maximum of $10,000 for any recipient in one purchase but there’s no limit on how many recipients you buy for or how many times you can buy for the same recipient in any calendar year. If you’d like, you can buy $10,000 worth of I Bonds for each of your 20 family members or you can make five separate purchases of $10,000 each for the same family member, all in the same calendar year.
If the recipient already received $10,000 in principal amount as gifts this year, buying additional I Bonds on their own will put them over their annual purchase limit. They’ll have to wait until they’re not receiving the maximum gifts.
Interest and Holding Period
Interest and the holding period start in the month of your purchase. If you pre-purchase gifts and wait to deliver them to the recipient at a later time, you still lock in the same fixed rate and inflation rate as other bonds bought in the same month. Interest earned while the gift savings bonds wait in the gift box belongs to the recipient. It’s exempt from state and local income tax.
The holding period for cashing out also starts right away. If five months have passed between the time of purchase and the time of delivery, the recipient only has to wait another seven months before they can cash out, as opposed to the full 12 months for freshly purchased bonds.
Gift to Kids
It’s not necessary to buy as gifts for your own kids under 18 unless you’re pre-purchasing for future years. As a parent, you can open a minor linked account in your account and buy directly in your kid’s name. See the previous post Buy I Bonds in Your Kid’s Name.
Buying I Bonds as a gift works when you buy for a grandchild or a niece or a nephew under 18. You only need the child’s name and Social Security Number when you buy the gift but you’ll need the child’s TreasuryDirect account number before you can deliver the gift. The child’s parent needs to have an account for themselves first and then open a minor linked account for the child under the parent’s account.
When Gifts Are Useful and When They Are Not
If you’re thinking of “borrowing” other people’s names and Social Security Numbers to buy more I Bonds as gifts but keep the bonds for yourself, it doesn’t work. Only the named recipient can cash out the bonds. If you don’t deliver them, the bonds stay in your gift box, and neither you nor the specified recipient can cash them out. After you deliver the gift bonds, it’s the recipient’s money, and they can do whatever they want with the bonds.
If you’re thinking of letting others buy I Bonds as gifts for you to double up the $10,000 annual purchase limit, it doesn’t quite work either. Gifts delivered to you count toward your annual purchase limit. If you receive the maximum in gift bonds for the year, buying additional bonds in the same calendar year will put you over the limit.
Buying I Bonds as a gift works when you want a family member to have some I Bonds but they don’t have spare cash. It works the same as giving them money and letting them buy themselves.
It also works to a limited extent if you think the high interest rates on I Bonds are only temporary. You can buy a gift for your spouse and hold it in your gift box. Have your spouse do the same for you. Wait to deliver the gift to each other in a future year. The older gift bonds will have earned the high interest rates in the years past and they have aged enough for immediate cashout.
We’re buying each other a gift this year to keep undelivered in the gift box in addition to our normal purchases. If the interest rate is still good next year, we’ll deliver the gift and buy a new gift in the gift box. If the interest rate isn’t good anymore, we’ll skip the purchase, deliver the gift, and cash out immediately.
Don’t Forget About Undelivered Gifts
As with physical gifts, most gifts are purchased and delivered in short order. If you hold gifts in your closet for a long time, you may forget that you bought the gifts in the first place. If you’re intentionally pre-purchasing gifts to take advantage of temporarily high interest rates, tell the recipient you’re holding a gift. Set recurring calendar reminders to tell yourself and the recipient you still have undelivered gifts in the gift box.
Remember that gifts are in limbo until they’re delivered.
You can include a second owner or a beneficiary for the I Bonds you buy as a gift. If the gift recipient dies before you deliver the gift, the designated second owner or beneficiary will inherit your gift. You can’t name yourself as the second owner of the gift but you can name yourself as the beneficiary of the gift. The recipient can change the second owner or the beneficiary after you deliver the gift. See How to Add a Joint Owner or Change Beneficiary on I Bonds.
If you die before you deliver the gift, the gift still belongs to the recipient. Whoever handles your affairs after your death should notify the recipient that you had an undelivered gift for them. Then the recipient can claim it through TreasuryDirect. Again, it’s important that you tell someone about the gift if you’re going to hold it undelivered. If no one knows you bought a gift, the gift will be in limbo.
Gift Tax Form 709
There’s no tax for receiving gifts. Gift tax is on the gift-giver.
Buying I Bonds as a gift counts as a completed gift in the year of the purchase (not the year of the delivery). There’s no limit on how much you can give as gifts to your spouse (unless the spouse isn’t a United States citizen). Each person has an annual gift tax exclusion amount for “present interest” gifts to each non-spouse recipient, which is 16,000 in 2022 and $17,000 in 2023. If the total “present interest” gifts (in I Bonds and other forms) during the year from one specific giver to one specific non-spouse recipient go above this annual gift tax exclusion amount, you’re required to file a gift tax return on IRS Form 709.
The gift tax annual exclusion amount for gifts to a non-spouse recipient is $0 for “future interest” gifts. You’re always required to file a gift tax return when you give “future interest” gifts to anyone except your spouse. It’s not clear to me whether the I Bonds you buy this year as a gift but hold for delivery in a future year count as a “present interest” gift or a “future interest” gift. To avoid ambiguity in determining whether it’s a “present interest” gift or a “future interest” gift, only give gifts to your spouse or deliver all gifts to non-spouse recipients within the same calendar year.
Unless you’re also giving the same non-spouse recipient gifts in other ways, buying and delivering $10,000 worth of I Bonds as a gift in the same calendar year falls below the annual gift tax exclusion amount, which doesn’t trigger the requirement to file the gift tax return.
If you’re required to file a gift tax return, it’s separate from the federal income tax return. The gift tax return goes to a special address. The typical consumer-grade tax software packages such as TurboTax and H&R Block software don’t support filling out a gift tax return. You’ll have to go to a tax professional or fill out the gift tax return on your own.
Having to file a gift tax return on Form 709 doesn’t mean you’ll pay gift tax out of pocket. Most people just use up part of their lifetime estate and gift tax exemption amount, which is more than $12 million in 2022. However, after you file the gift tax return once, you’ll have to keep track of how much of your lifetime estate and gift tax exemption amount you already used. See IRS Instructions for Form 709 if you decide to give gifts that will require a gift tax return.
Although TreasuryDirect has an official video walkthrough for how to buy a gift, it’s very easy to make a mistake if you follow the video when you’re buying a gift for the first time. I read many reports from people intending to buy a gift but ending up buying bonds for themselves.
It’s easier if you follow these steps when you’re buying a gift for the first time.
Click on ManageDirect in the top menu. Then click on the link “Update my Registration List.”
You’ll see a list of existing registrations in your account. Click on “Add Registration” to create a new one.
The radio buttons at the top show the registration types.
- Sole Owner means the gift recipient alone, without a second owner or a beneficiary.
- Primary Owner means the gift recipient with another person as the second owner.
- Beneficiary means the gift recipient with another person as the beneficiary.
If you choose Primary Owner or Beneficiary, enter the gift recipient as the First-Named Registrant and the second owner or the beneficiary as the Second-Named Registrant. You need the Social Security Number of both the gift recipient and the second owner or the beneficiary. You can’t name yourself as the second owner but you can name yourself as the beneficiary.
Make sure the spelling of the recipient’s name matches exactly what the recipient has or will have on their TreasuryDirect account. If the recipient has their full middle name on their account, you also include their full middle name. If the recipient only has their middle initial or no middle initial, you do the same in your gift registration. A mismatch between the names can cause a problem when you deliver the gift.
Check the box “This is a gift.” After you click on Submit, the new combination will be added to your list of registrations. You will use this registration when you buy the gift.
You only need to do this once per gift recipient.
Place Gift Order
Now click on BuyDirect in the top menu.
Select “Series I.”
This is important. Use the dropdown to select the gift registration. The name of your gift recipient should appear first, for instance, “Gift Recipient POD My Name.”
Now enter the purchase amount and the rest of the information.
Pay attention to the registration information on the final purchase review page and make sure the purchase is for the intended gift recipient before you click on Submit.
See a walkthrough in Deliver I Bonds Bought as a Gift in TreasuryDirect. You need the gift recipient’s TreasuryDirect account number. If they don’t have a TreasuryDirect account, they need to open an account to receive the gift delivery even if they’re not buying any savings bonds on their own.
If the gift recipient is a minor, a parent needs to open a Minor Linked Account for the minor under the parent’s account (see Buy I Bonds in Your Children’s Names). The parent needs to open an account for themselves before they can open the account for the minor even if the parent isn’t buying any bonds.
Remember to check with the recipient how much they are planning to buy themselves this year because delivering gifts to them counts toward their annual purchase limit.
There’s no way to pre-schedule delivery for a future date. You’ll have to log in every time you’d like to deliver a gift. If you’re keeping undelivered gifts in your gift box, set calendar reminders for yourself and the recipient to make sure you don’t forget the undelivered gifts.
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