US Savings Bonds: Increasing Annual Purchase Limits With A Minor Account

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Got a reader question today about the purchase limits for savings bonds:

Can I get around the $20,000 annual buying limit by purchasing I-bonds in my child’s name?

After doing some research, it does appear that yes, you can exceed the usual purchase limits by buying more bonds in the names of your children. Currently, the annual purchase limit is now $5,000 in paper bonds and $5,000 in electronic bonds per series type (EE/I) and per Social Security Number. Thus, a couple could buy a total of $20,000 per year in I-Bonds.

From the TreasuryDirect Change in Annual Purchase Limit FAQ:

I’m buying bonds for myself and my children through my TreasuryDirect account. How does the limit apply to these purchases?

You can buy up to $5,000 each year of electronic Series EE and I bonds in TreasuryDirect on which you are the primary owner, plus up to the limit of each series in the name of each child for whom you’ve established a linked account in the child’s name as primary owner. Minor linked accounts are sub-accounts of your own master account, but do not provide you with ownership rights to securities held in the linked sub-accounts.

The next question is do you have the ability to buy and sell the bonds? From the TreasuryDirect Establish an Account for a Minor page:

A Minor account is a custodial account you may establish for a child under the age of 18 if you are a parent, natural guardian, or person providing chief support. You may purchase, redeem, receive gift deliveries, and perform other transactions within the account on behalf of the minor. When the minor reaches age 18 and establishes his or her own Primary account, you may de-link the securities from the Minor account to move them to the newly established account.

Other considerations
Since these bonds will be bought in the name of a minor, they are the one that will receive the interest income when redeemed. This might actually be a good tax move, as a child can earn a certain amount of income ($1,900 in 2009) before it is subject to tax at the parent’s higher rate. See this IRS page for more info.

When the child turns 18, it is then in their control and you can no longer perform most transactions like selling the bonds. In addition, there is also the education exclusion which can allow bond owners to avoid paying tax on the interest when used for qualified higher education expenses. If you’re thinking of doing this, remember that the bond has to be in the parent’s name, not the child’s name. More details here.

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  1. Why does the Obama administration not raise the purchase limit on Savings Bonds? Everyone who accuses him of socialism should be as surprised as I am since the Savings Bond program is like a public option bank, is it not?

  2. ParatrooperJJ says

    While these accounts do become the property of a minor when they reach the age of majority, there is no requirement to actually tell them abount the account.

  3. What is the return of EE/I bonds? Is it worth spending money into treasury bonds comparing to other alternatives (like CD etc.). Thanks

  4. Small detail: that $1900 limit is specific to investment income. You can earn more income via wages and not have to file or pay taxes.

  5. Take out those bonds before your kid goes to college! If they stay in your kid’s name, the financial aid program at most schools (and Gov’t) will expect all of it to go to his/her education. Parents, on the other hand, are not expected to use all of their savings for education. This is the case at most decent need-blind universities. Of course, if you have enough money to pay for full tuition, then it helps to keep it in your child’s name, but I suspect that is a pretty rare case here.

  6. Could you then take that interest earned in the child’s name and open a Roth IRA in his named using those earnings? This might be a good way to set the child up for a solid retirement. 60yrs of compounded interest!

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