When you have retirement accounts with a private financial institution, you can designate beneficiaries for the account. Some financial institutions also allow Pay On Death (POD) or Transfer On Death (TOD) designations for non-retirement accounts. After reading the previous post How To Grant Transact Right on I Bonds to the Second Owner, someone asked whether it’s easier and better to set up the I Bonds in TreasuryDirect with a beneficiary as opposed to a second owner.
One difference between TreasuryDirect and other financial institutions is that the beneficiaries and the second owners in TreasuryDirect are set at the holdings level, not at the account level. Theoretically, within the same account, you can hold some I Bonds without any second owner or beneficiary, some I Bonds with Person A as the second owner, some I Bonds with Person B as the second owner, some other I Bonds with Person C as the beneficiary, and yet another set of I Bonds with Person D as the beneficiary, and so on. Even though you may not need this much granularity, you can’t simply set a second owner or beneficiary for the entire account.
After you die, your second owners and/or beneficiaries need to contact TreasuryDirect by phone or email, effectively saying:
The owner of this account died. I’m the [second owner or beneficiary] of some bonds in the account. Please give those bonds to me.
If your beneficiary has their own TreasuryDirect account, you can let the beneficiary see which I Bonds they’re a beneficiary of by granting them View rights on those I Bonds. The process to grant View rights to the beneficiary is the same as the process to grant Transact rights to the second owner, as I showed in the previous post. You also have to do it bond by bond.
You can have either a second owner or a beneficiary on a bond, but not both on the same bond. Your second owner or beneficiary on the bond has to be a person, not a trust.
Whether you should set up your I Bonds with a beneficiary versus a second owner depends on whether you want to let someone transact on those bonds on your behalf when you’re still living. A beneficiary can only be granted View rights. A second owner can be granted either View or Transact rights. In a sense, the second owner with Transact rights is like a beneficiary plus a power of attorney. The second owner with only View rights can’t do anything more than a beneficiary.
| Beneficiary | Second Owner | |
|---|---|---|
| Set on each bond | Yes | Yes |
| Receive bonds after your death | Yes | Yes |
| Can be granted View rights | Yes | Yes |
| Can be granted Transact rights | No | Yes |
As the primary owner of the I Bonds, you can change the arrangement at will. You can add or remove a beneficiary or a second owner at any time. If you started with a beneficiary and now you want a second owner, you can remove the beneficiary and add a second owner. If you started with a second owner and now you want to downgrade to a beneficiary, you can revoke the Transact rights or remove the second owner altogether and add a beneficiary. It’s all up to the primary owner.
Reference: Registering a Savings Bond: Series I
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Mark L says
Is there a tax advantage for the case of having a co-owner? If the owner passes away the ownership is transferred to the co-owner and taxes can be continued to be deferred. Can the same be been done with a beneficiary or will the owner’s estate or beneficiary have to pay taxes at time of inheritance?
Harry Sit says
The treatment after death is the same whether you have a second owner or a beneficiary. The beneficiary can also keep the bonds and defer the taxes until the bonds mature or are redeemed. The owner’s spouse or estate can choose to include the accrued interest up to the owner’s death on the owner’s final tax return. If they make that choice, the beneficiary will pay taxes only on the interest earned after the owner’s death, but the beneficiary will have to remember how much interest was already accounted for because the 1099 will include 100% of the interest. See pages 8-9 in IRS Publication 550.
https://www.irs.gov/pub/irs-pdf/p550.pdf
MHB says
Hi – I see where I can add a beneficiary in my account but I do not see the option for 2nd owner. I have never owned before and bought $25 last night to test I set-up account including bank info correctly and went to add 2nd owner (my husband) this morning and did not see that option so I did add him as a beneficiary and the account name for this transaction now has my name POD his name. I bought the remaining $9,975 this morning and was able to select that account but can’t find secondary owner option. He is going to open his account account and buy max $ and we would want to do same and once he has account I can give him view access to mine and versa-versa but would prefer to use second owner. Thanks for any help you can provide.
Harry Sit says
When you buy I Bonds you’re asked to create a new “registration” or pick an existing registration. You have three radio buttons for the new registration: Sole Owner, Primary Owner, or Beneficiary. Choose the second radio button (“Primary Owner”) when you want a second owner. Enter your name and information as the “first-named registrant” and enter the second owner’s name and information as the “second-named registrant.” It’s the same way when you added a beneficiary except you selected the third radio button (“Beneficiary”).
MHB says
Question regarding annual max purchase. As I understand it, individuals can buy the $10k plus the $5k via tax refund for total $15k per year. If my husband buys $10k as an individual (and maybe additional $ via refund), can I also gift him additional $10k in same year.? Thanks.
Harry Sit says
The maximum purchase using the tax refund is $5,000 per tax return. If you file a joint return, you’re still limited to $5,000. I Bonds purchased as a gift count toward the gift recipient’s annual purchase limit. It’s the same as gifting cash and having the recipient buy the bonds.
MHB says
Hopefully last question. For those who own these bonds, how do you best track and account for them in your overall portfolio? I added manually into my Fidelity Full View as taxable investments and labelled them as I Bonds 2021 to offset the decrease in the account where the $ came from. to purchase. Anything else I should be doing? Thanks.
Harry Sit says
Manual updates in Full View works. Some people use a spreadsheet.
Mike Quinn says
My wife and I are purchasing $ 10,000 each of I Bonds. Since, 10K is Mac per Social Security Number; if we designate each other as Beneficiary or Second Owner, does that preclude the other from buying their 10K? I would think the Beneficiary designation would allow us each to buy the 10K whereas the Second Owner would mean we couldn’t each purchase 10K.
Our goal, for as long as rates are high is to buy 10K each for each calendar year
Harry Sit says
The quota is tracked only on the primary owner. Being a second owner or a beneficiary doesn’t affect it.
linda says
Is it possible to register my husband as second owner, then my mother as beneficiary?
don’t see there’s an option to do so, or just I haven’t figured it out?
Thanks
Harry Sit says
Not possible. You can appoint only one person. The second person can appoint their own second owner or beneficiary after you die.
linda says
Thanks, Harry:
But I worry about: what if both of us(being second owner or beneficiary) die at the same time?
thanks
Harry Sit says
You’ll have to live with that limitation. If both of you die at the same time, the bonds go to your estate. Your will takes effect.