I Bonds are the best bonds you can buy at the moment, if only you can buy more of them.
In addition to buying I Bonds on the government website TreasuryDirect (see How to Buy I Bonds: Soup to Nuts), you can buy another $5,000 per year indirectly, but only if you’re due at least that much in tax refund and you tell the IRS to use part of your tax refund to buy I Bonds. You can’t send a check with your tax return and ask them to buy I Bonds for you.
If you normally don’t have a tax refund that large, you can increase your tax refund by overpaying ahead of time. Because I’m self-employed and I pay quarterly estimated taxes, I just pay extra for the fourth quarter.
IRS Direct Pay
If you don’t pay quarterly estimated taxes, you can make a one-time payment through IRS Direct Pay. After a year is over, you can still pay toward the previous year’s taxes with an automatic extension. When you say your payment is for an extension, the payment automatically files the extension. You don’t need to fill out another form.
You get extra time with an extension but you don’t have to use it. You can still file your tax return on time before April 15.
When you pay extra, don’t make your refund exactly $5,000. Make it a small odd amount above $5,000 so that you’ll still have a small refund after buying I Bonds. For example, if you’re expecting a refund of $2,136, pay $3,000 with your automatic extension. Now your expected refund is $5,136. When you see $136 deposited to your bank account, you’ll know the other $5,000 is sent to buy I Bonds.
TurboTax
After you pay extra with an automatic extension, make sure to account for it on your tax return. In TurboTax, it’s under Federal Taxes, Deductions & Credits, Estimates and Other Taxes Paid, Other Income Taxes.
Then choose payment with the federal extension for the previous year.
When it comes to buying I Bonds, it’s in the final steps before filing your return when TurboTax asks you whether you’d like to receive your refund by direct deposit or by check. You check a box at the bottom to say you want to split your tax refund and use part of it to buy I Bonds.
Then you will say how much you’d like to buy and whose name(s) should be on the bonds.
H&R Block Software
It works similarly in H&R Block tax software. The payment with extension is under Federal, Taxes, Federal Tax Payments.
In the final steps before filing the return, when it asks you for the bank information for direct deposit, there’s a small link about U.S. Savings Bonds.
Clicking on the “learn more” link opens a pop-up that tells you how to find the necessary Form 8888.
You enter the amount you’d like to buy and the names that should appear on the bonds in Form 8888.
12 Envelopes
After you file your tax return, if everything goes well, the I Bonds will come by mail in multiple denominations. They will issue the first $250 in $50 bonds, and the remaining amount in the fewest number of bonds. As a result, if you buy the full $5,000, you will receive:
- $1,000 bond x 4
- $500 bond x 1
- $200 bond x 1
- $50 bond x 6
That’s a total of 12 bonds. Each bond will come in a separate envelope. Because the bonds have your name and address printed on them, it’s just easier for them to put each one into a separate window envelope. Collating multiple bonds into the same envelope increases the risk of a mix-up. So expect 12 individual envelopes to come in the mail when you buy the full $5,000.
Sometimes the bonds don’t come in one batch. If you receive fewer bonds than you’re expecting, just wait. More likely additional bonds will show up in the mail in a few days.
You can keep these bonds in paper form if you’d like. Put them in a safe deposit box. When you’d like to cash out, you can take them to your bank or credit union or a major national bank such as Bank of America or Chase. They will look up the current values in their system and deposit the money to your account or give you cash.
Convert Paper I Bonds to Electronic
If you’d like to consolidate these paper bonds with the bonds in your TreasuryDirect online account, you can mail them to the Treasury Department and deposit them into your account. Please read How To Deposit Paper I Bonds to TreasuryDirect Online Account.
If only they ask for your TreasuryDirect account number on the tax return, they won’t have to mail you the bonds and you won’t have to mail them back in. While it is possible to direct deposit part of your tax refund into your TreasuryDirect account using a special routing number, when you use the money to buy I Bonds, you use up part of your $10,000/year quota, which defeats the whole purpose of overpaying taxes to buy additional I Bonds. Again, the government has no incentive to make it easy. If you want more I Bonds, you’ll have to tolerate their process.
When Something Goes Wrong
Sometimes instead of receiving I bonds, you get 100% of your tax refund deposited into your bank account. It’s not clear why this happens to some people.
You can’t do anything about it. Once you receive your tax refund, it’s not possible to have the IRS take it back and buy I Bonds for you. Try your luck again next year. It may help if you make your tax refund not exactly $5,000. Make it say $5,081 and ask for $5,000 in I Bonds and $81 as a direct deposit to your bank account.
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Dan A says
Thanks for the detailed explanation!! I remember trying out T-bills after your article (almost) 2 years ago, before the rates dropped. Now that it seems inevitable that we’re going into a Japan-like economy, staying slightly ahead of inflation doesn’t sound so bad.
If my TreasuryDirect acct is setup for a Living Trust, can the I bonds be in my name (as they most likely will be from the IRS), or do they have to in my name as trustee?
Harry Sit says
I don’t have a trust account there. It looks to me that an individual account and a trust account are separate, and all the bonds you buy in the trust account belong to the trust. If you want bonds in your name you’d have to open a separate account as an individual. You can have the bonds in your individual account “reissued” to the trust.
Dan A says
I guess the best option is to use line 5 on Form 8888 to specify myself with a trustee designation, rather than using line 4. They make it so confusing.
Haseung says
Harry,
After reading your article, I purchased $5,000 as I was filing the tax. Yesterday, I received the I-bonds in the mail like you mentioned. However, I only received 5 of the $50, so total $4,950. Is there anything I could do in this case?
Thank you for your help!
Harry Sit says
Haseung – Sometimes the paper bonds come in separate envelopes. Wait a week and see if the missing bond will show up in the mail. See comments #13 and #14 below.
LK says
I use TaxAct to file. Do you have screenshots on how to do this in TaxAct?
Harry Sit says
Sorry, I don’t have TaxACT.
DB says
Great post Harry. Thank you for answering all the questions I had on this topic.
Ames says
Thank you for another timely post, Harry! I just increased my estimated payment to allow for this option. It will be my first time doing this and I will follow your helpful steps when filing.
H says
Thanks Mr. Sit! I just purchased $10k of I Bonds after reading your post and doing some research.
I’d like to ask if I am to make a one-time payment on IRS for tax year 2020, the tax refund that I plan to use to buy another $5k of I Bonds, will that be considered 2020 or 2021?
Harry Sit says
They will be 2021 bonds. Say the IRS processes your tax return in April and sends $5k from your tax refund to the savings bond department. If it’s still before the end of April when they process your bond order, you’ll get April 2021 bonds. If it’s already May, you’ll get May 2021 bonds.
DB says
EThe I-bonds you purchase with your 2020 tax refund will be considered a 2021 purchase. If you file in April 2021, your issue date could be April 1st or May 1st, depending on when IRS processes your return and Treasury Direct issues your refund in the form of I-bonds.
H says
Thanks Harry and DB!
MDF says
Howdy Harry. Thank you for the nice article. We are in our 60s. For the bond side of our portfolio we have Vanguard’s Total Bond Market Index Fund in a Roth IRA. Would think it wise to redeem some of those shares and buy I-Bonds?
Happy trails, MDF
Harry Sit says
Because you can’t buy I Bonds inside a Roth IRA, if you must take money out of the Roth IRA to buy it, it’s probably not worth it. Earnings in a Roth IRA are tax-free. Interest on I Bonds is taxable when you redeem the bonds.
Steve says
If you are filing a joint tax return, the description for Form 8888 line 4 says “(and your spouse, if filing jointly)”. Are these just bonds issues with both spouses as co-owners? Can they then be converted into electronic bonds in either spouse’s TreasuryDirect account?
Harry Sit says
Yes. The bonds will have both spouses as co-owners and they can be converted into either owner’s account.
“If you’re a TreasuryDirect account owner, you can exchange paper savings bonds on which you are the sole owner, a co-owner, or the owner with a beneficiary.”
https://www.treasurydirect.gov/indiv/research/indepth/smartexchangeinfo.htm
EV says
Great post. I had planned to do this before reading your post. We had about $3500 coming back to us this year so I want to add another $1500 to get up to $5000. But I have a very old school question, in case you have the answer.
I plan to file my tax return via paper mail. I was hoping to include that extra $1500 payment with my return as a paper check, having already accounted for that in my 2020 estimated tax payment number on line 26 of form 1040.
Would that be an acceptable approach? I was hoping to be able to determine they had received my paper return once I saw that my check had been cashed. Your opinion on this approach would be appreciated.
Steve says
I’m pretty sure the IRS will only accept a check with an appropriate form, either 4868, a 1040 with taxes due, a quarterly estimated tax form, or similar.
Harry Sit says
EV – I agree with Steve. That doesn’t work. A check that accompanies the 1040 isn’t an estimated tax payment. If you’d like to confirm that your paper return is received, you can mail it certified and track the delivery through USPS. To increase your refund, IRS Direct Pay with automatic 4868 extension is still the easiest way.
EV says
Well, I’m very glad I asked. Thanks Steve and Harry for the quick feedback, and I’ll use that suggested approach. Appreciate it!
Michele says
Thanks for all the great information!
If filing married jointly, is the limit $5000 per individual or total for both?
stannius says
Total for both.
Steve says
I just got my paper bonds. Instead of two $100 bonds I got one $200 bond.
Rob says
I made sure to overpay taxes and asked for $5000 in bonds on my Turbotax return. Received a single $500 bond in the mail today. An error? Should I wait to see if the rest arrives separately? I don’t even know whom to contact to fix it.
Steven Crisp says
I’d say wait a while. For some reason, they send the bonds separately. Last year I received all but one on a given day, and then 3 or 4 days later, the last one showed up.
Hopefully the reverse for you will occur.
Rob says
Yep, I got some more the next day, and the final $1000 showed up another two days later. Such a silly system…
DB says
Has anyone tried making extra tax payment with extension using a credit card similar to Direct Pay to get paper I-bonds? The table at https://www.irs.gov/payments/frequency-limit-table-by-type-of-tax-payment seems to indicate this can only be done until April 15th, but https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline appears to extend that deadline to 5/17/21.
Harry Sit says
The IRS accepts payments with an automatic extension through May 17. The deadline is the same whether you pay by card, Direct Pay, or EFTPS.
DD says
If I already filed my 2020 return several months ago and it was accepted, am I out of
luck on following the recipe in this article for the 2020 tax year?
How would the recipe be modified to fit this case? Would an amended
return be of use?
Harry Sit says
Too late for the 2020 tax year but there’s always next year. This only gets you the extra $5,000. The regular $10,000 per person through the TreasuryDirect website is still open.
David Galyardt says
Harry,
Many thanks for all of your knowledge sharing! I followed the process you suggested above and received the bonds for my wife and I as you described. My question is in the process of consolidating these into my Treasury Direct account. In your experience is there any issue in sending $2500 worth of bonds in a single USPS mail to the Treasury? I was thinking of doing it in smaller chunks to make the headache of lost/stolen mail less impactful. Also, in your experience, how long does it take before your account gets credited?
Many thanks for all your help!
Dave
Harry Sit says
I don’t have any issue with sending all the bonds and the manifest in one envelope. The paper bonds are replaceable when you have the serial numbers (take pictures before sending). If you’d like to test the process by sending only the small denominations first, that’s certainly OK.
I haven’t received my bonds from this year’s refund yet. As I remember from previous submissions, it took a few weeks. Because the issue date won’t change, you still get the same amount of interest. Since you can’t redeem in the first year anyway, it doesn’t matter how long they take to complete the process after they acknowledge the receipt.
Marlene says
I haven’t received my bonds in mail (for 2020 refund) yet either, so thank you for posting.
Steven Crisp says
Question — For tax year 2020 I overpaid by exactly $5000, and requested iBonds be sent to me. Instead I received a $5000 direct deposit. Any idea what I might have done wrong? Anyway you can think of to somehow correct this issue for 2020 or has that ship sailed?
– Note 1: we already purchased $10K iBonds directly for my wife and me last year, and plan to do that again this year, so that’s not a way to make up for this apparent error on the part of the IRS.
– Note 2: I have received iBonds back via mail from IRS in previous years, which is why I’m so surprised it did not work this time.
I welcome your feedback, and assistance with anything I may have done incorrectly.
Harry Sit says
There isn’t anything you can do now. Sometimes it just happens for no good reason. I suggest you make your refund not exactly $5,000 next time. Make it say $5,081 and ask for $5,000 in I Bonds and $81 in direct deposit. Maybe it will help.
Steven F. Crisp says
Thanks very much for the suggestion, Harry. I’ll try it this year. Wishing you the best.
Chris says
Rather than relying on paper bonds delivered by mail, the instructions for the IRS Form 8888 say that you can buy the bonds electronically. Paper bonds are only if you don’t have a TreasuryDirect account.
From the General Instructions for Form 8888:
“U.S. Series I Savings Bonds
You can request that your refund (or part of it) be used to buy up to $5,000 in series I savings bonds. You can buy them electronically by direct deposit into your TreasuryDirect® account. See instructions under Part I for details. Or, if you don’t have a TreasuryDirect® account, you can buy paper savings bonds. See the instructions under Part II for details.”
Harry Sit says
When you use the direct deposit to the TreasuryDirect account to buy I Bonds, you use up part of your $10,000 quota for the year. You get the extra $5,000 on top of your $10,000 per year only when you ask for paper bonds.
Steven F. Crisp says
Thanks Chris … I had already purchased my 2x $10,000 iBonds from Treasury Direct for 2020. Hence my desire to get the paper iBonds through the IRS.