Many people bought I Bonds as a gift and kept them for the future when I Bonds had a good interest rate last year. These bonds started earning the good rate while they were held in a “gift box.” They are eligible for delivery to the registered recipient now.
No Change in Terms
Delivering a gift bond moves the bond from one account to another. It doesn’t change the terms of the bond — how much interest the bond earns, when the bond can be cashed out, or when the early withdrawal penalty will stop. Those terms were set on the bond itself at the time it was originally purchased. The bond carries the same terms as it moves from one account to another. It doesn’t matter which account the bond resides in.
Limit Resets by Calendar Year
I Bonds received as gifts count against the recipient’s annual limit in the calendar year of receiving the delivery. Because the annual limit resets on January 1 each year, you can deliver a gift early in the year even though you bought it last October. You don’t have to wait 12 months.
Reason to Postpone
If the gift recipient wants to preserve the annual limit for their own purchase, they may want you to postpone the gift delivery but it doesn’t matter between spouses because you can always buy a new gift and hold it in the gift box again.
When you deliver the current gift and buy a new gift to replace it, the gift recipient has a bond and you have a bond in the gift box. If the gift recipient were to buy directly, the new bond has to wait 12 months before it can be cashed out, whereas the 12-month clock on the delivered gift bond already started last year.
Example: Suppose you bought one bond in your main account and another bond in your gift box for your spouse last year, and your spouse did the same. Your base plan is to repeat it this year — buy one bond in your main account and one for your spouse in the gift box. You’ll end up with two bonds in your main account and two bonds in your gift box.
Alternatively, you deliver the existing gift, receive a gift delivery, and buy two bonds for your spouse in the gift box. You’ll also end up with two bonds in your main account — one from last year, and one from receiving the gift delivery — and two bonds in your gift box. The difference is that the received gift delivery is eligible for cashing out sooner than the bond you would’ve bought directly.
Postponing delivery to preserve the annual limit makes sense only when you’re unwilling to buy a new gift.
Delivering the gift now clears the gift out of your gift box. It closes the loop. You will have one less thing hanging in the air. Unless you have a good reason to postpone, just deliver the gift and move on.
The principal value of the received gift counts against the recipient’s annual limit. The interest earned doesn’t count against the limit. You can deliver a $10,000 bond in full to the recipient even though the bond is worth more than $10,000 at the time of delivery because it earned some interest.
To deliver the gift, log in to your TreasuryDirect account and click on Gift Box on the right in the menu at the top.
Go into the bond in the list and click on Deliver. Choose the option “Deliver full amount.”
You need the recipient’s TreasuryDirect account number. The name on their TreasuryDirect account and the name on your gift must match exactly including the use of the middle initial versus the full middle name.
The gift bond moves into the recipient’s account as soon as you click on Submit to deliver the gift.
The rightful owner of the gift takes full control of it now. If you made yourself the beneficiary when you bought the gift, the owner can edit the registration to make you the second owner and grant you the transact rights now. Or they can put a different second owner or beneficiary on the bond. See How to Add a Joint Owner or Change Beneficiary on I Bonds and How To Grant Transact or View Right on Your I Bonds.
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> Reason to Postpone
> If the gift recipient wants to preserve the annual limit for their own purchase, they may want you to postpone the gift delivery but it doesn’t matter between spouses because you can always buy a new gift and hold it in the gift box again.
I don’t understand your statement that “it doesn’t matter between spouses” because if I bought $10k last year for myself and a $10k gift for my spouse (as yet undelivered), and she also bought $10k for herself and a $10k gift for me last year, and we both plan to do the same this year, then it very much matters to us as married spouses. In order to do that again this year, we will want to defer transferring last year’s (and this year’s) gifts until a later year when we no longer want to purchase I bonds, correct? If this isn’t correct, I’d love a more in-depth explanation as to why. Thanks Harry!
Harry Sit says
I added an example in that section.
I have the same confusion Brad. I thought that the first year was the only year my spouse and I could buy a $10k bond for our both own accounts and our gift boxes ($40k total). Then in each year after that, we’d both transfer the gift to each other and replenish the gift boxes with new $10k bonds ($20k total). If we continued to purchase our own bonds after the first year, we’d have to postpone the gift transfers to a future year.
I think what’s he saying is you’re not repeating the 4 buys. You’re only going to get 2.
If the gift recipient wants to preserve the annual limit for their own purchase, they may want you to postpone the gift delivery but it doesn’t matter between spouses because you can always buy a new gift and hold it in the gift box again
means: spouse wants to still buy , it doesn’t matter because you can still gift them (essentially doing the same as buying since it’s between spouses).
Holding delivery you could do the 4 again which may make sense this year but ultimately next year you’ll have two in the gift box which can only be delivered 1 at a time, so if ibond return is low, and other choices better you could potentially have an opportunity cost there
Thank you for covering this topic, and in particular, for the advice about why one would postpone gift delivery. The section “Limit Resets by Calendar Year,” you are referring to the annual purchase limit. I have two questions that are related to whether there is a recipient limit. Specifically…
1) Can one spouse deliver multiple $10,000 I Bonds from the Gift Box to the other spouse in the same calendar year?
2) Can two non-spouse relatives deliver multiple $10,000 I Bonds to the same relative in the same calendar year?
John Endicott says
the answer to both questions is no. You have a 10k limit for the year. Whether you buy 10k yourself of other people gift you 10k, the limit remains 10k. So, in either case, only one 10k deliver will be successful for the calendar year (or none will, if you already purchased 10k for yourself).
Spouse and I each purchased $50k in Ibonds for the other last summer when rates were high. We delivered all the bonds to each other in January of this year. The TD system did not cap our gift delivery.
John Endicott says
BerkleyGirl, interesting. While the website might not be smart enough to catch what you did, I suspect somewhere down the line that TD will eventually discover it and undo the gifting above 10k. Please post a follow-up letting us know when/if that happens.
I have yet to redeem an I Bond, but I have a somewhat related question about redemption that I don’t recall having come up before. If you redeem an I Bond within five years of the issue date, you forfeit the last three months of interest which your I Bond earned but TD doesn’t show you online (for a somewhat confusing yet sensible reason). This begs the question — Is all the interest federally taxable including the last three months you earned but never received because it was forfeited as a penalty, or is the penalty subtracted before the taxable interest earned is declared since that’s the net interest you actually receive? I realize we’re not talking about a lot of money here, but I’m curious.
Harry Sit says
You only pay tax on the net interest you actually receive.