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
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. More details on tax considerations here.

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Comments

  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!

  7. A couple of clarifications/corrections:
    When you buy bonds for a minor added to your treasury direct account you and the child are co-owners of the bond and the following applies: “When a bond is redeemed by a co-owner, the IRS taxes the person who originally contributed the money to buy the bond.”
    Source: https://finance.zacks.com/savings-bonds-name-minor-coowner-11380.html
    The alternative is to buy the bonds in a UTMA account through a bank, but then you won’t be able to take the money out of the account when they go to college (or before or after). It’s their money and taking the money back from them is a serious crime.
    Source: https://www.thebalance.com/spending-childs-utma-money-illegal-358134

    • Interesting, thank you for sharing. I also found this on the TreasuryDirect.gov website about moving into a Minor Linked Account, but I guess that no matter what you are considered a co-owner on the account? I believe that I also read that you lose the ability to make sell transactions at TreasuryDirect once the child turns 18.

      If you wish to convert bonds on which your minor child is named as a co-owner with you–the Primary Account owner–and you wish to deliver the bonds to a Minor Linked Account in the name of the minor, provide this information in the Comments field when you enter the Security Information on the Add a Bond page. Once the bonds are converted, they will appear in your child’s Minor Linked Account.

      If you do not provide the instructions before the bonds are converted, transferring the bonds from your account to an account with a different taxpayer identification account number–such as your child’s Minor Linked account–is reported to the IRS for the tax year in which the transfer occurs. The Minor Linked Account must be established before converted bonds may be delivered to the account. If you wish to create an account for your minor child, select Establish a Minor Linked Account under Manage My Linked Accounts on the ManageDirect page in your Primary Account.

      • I was wrong about the co-ownership. Here on the treasury website it says:
        “If you are the parent or other adult responsible for the minor’s support, you can set up for the minor an account that is linked to your TreasuryDirect account. The only way to go to the minor’s account is through your account. Securities registered in the minor’s name can be bought through or transferred to the minor’s account.”
        https://www.treasurydirect.gov/indiv/research/indepth/ibonds/registeringibonds.htm

        If the child is the owner of the bond, do then UTMA rules apply where it is illegal for the parent to ever move the money back to their own account?

        • To answer my own question, yes:
          a) The minor account at TreasuryDirect is in fact a “custodial account.” https://www.treasurydirect.gov/indiv/help/tdhelp/help_ug_126-LinkedAccountLearnMore.htm
          and
          b) “Any deposit or gifts made to [a custodial account] is irrevocable, meaning it cannot be changed or reversed.”
          https://www.investopedia.com/terms/c/custodialaccount.asp

          • Thanks for the follow-up. I’m still interested in the idea that you are listed as co-owner with the minor, as well as the possibility of NOT using a minor linked account. It seems to be a possibility due to the quote “*If* you wish to convert bonds on which your minor child is named as a co-owner with you–the Primary Account owner–and you *wish* to deliver the bonds to a Minor Linked Account in the name of the minor”.

            The question is, can you do with using the minor’s SSN to go past your own purchase limits? I may have to call TreasuryDirect and ask myself.

          • Yes, I’d also be interested to know if you can go past your purchase limit WITHOUT using a minor account if you register the bonds to the child as the primary owner and you as the co-owner.

            Thank you so much for thinking this through.

  8. Your question is answered in the below boglehead thread:
    https://www.bogleheads.org/forum/viewtopic.php?t=198337
    It seems like it all depends on how you register the bonds when you purchase them as the purchase limit always applies to the *primary* owner of the bond.

    I’ve decided to register 4* $10k in bonds as follows:
    1st $10k: Husband owner
    2nd $10k: Wife owner
    3rd $10k: child #1 primary owner WITH wife as secondary owner (purchased through child#1’s linked minor account)
    4th $10k: child #2 primary owner WITH wife as secondary owner (purchased through child#2’s linked minor account)

    I was able to choose on the purchasing page on TreasuryDirect how to register the bonds. By default the bonds are registered with the minor as the sole owner. I had had to click on the “new registration” button on the purchase page to set up the “primary owner” registration with my wife as the co-owner.

    When registering the bonds this way, the wife is responsible for paying tax on the bonds co-owned with the children.
    https://finance.zacks.com/pays-tax-savings-bonds-held-jointly-5266.html

    The upside of co-ownership is that the money is still the wife’s and not irrevocably that of the child:
    https://www.mymoneyblog.com/us-savings-bonds-increasing-annual-purchase-limits-with-a-minor-account.html#comment-371687

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