11/2/2023
I-Bonds: Tips & FAQs
I-Bonds have received much attention lately. We have visited with numerous clients who have purchased I-Bonds. Unfortunately, we cannot facilitate the purchase and do not have access to your account information. Still, we are happy to answer questions about them and want to take an opportunity to share some tips and FAQs we have compiled.
First, if you are not familiar with I-Bonds, refer to this article which explains what they are and why they may be an excellent low-risk inflation hedge.
If you have purchased I-Bonds or plan to, here are some tips to consider:
- These bonds will not appear on any financial reports from our office. Therefore, keep your account number and passwords in a safe place.
- If you do purchase I-Bonds and you are a client of the Investment Service Center, let us know. Although we cannot facilitate the purchase or redemption, our office monitors the variable rate and will send notifications as we see the rate change.
- Your purchase is a digital investment. You will not receive paper statements or documentation. It’s essential you add a record of these assets to your balance sheet and any other documentation of assets you own. If you have a safe deposit box or another safe place where you store financial documents, we encourage you to make a note of your I Bonds there.
- If you want to avoid probate, you might consider adding a joint owner or beneficiary to holdings in your account (see below).
- Although the interest on the I-Bonds is exempt from state and local taxes, federal tax treatment varies depending on who owns the bonds and how they are used. You can report interest income from your bonds in one of two ways:
o Report the interest in the year you owe it. If you start reporting bond interest every year, you must continue to do so every year after.
o Report the entire amount of interest earned when the bond matures or when you redeem it, whichever comes first.
You will not be paid interest until the bond is cashed, even if you choose to report the interest in the year it is earned. You will only receive a 1099-INT on cashed or redeemed bonds. If you choose to report yearly, after the bond is redeemed, the 1099-INT will show all the interest earned from the date of issue, and you will need to subtract the interest you paid tax on in prior years from your taxable income. - Remember, you cannot cash bonds for at least 12 months after purchase. If you redeem the bonds before the five-year anniversary of the purchase date, you will pay a penalty of the last three months’ interest.
To learn more details about I-bonds and to view step-by-step instructions and FAQs, you can visit TreasuryDirect. Although we cannot assist in purchasing I-Bonds, we can help you find solutions to meet your financial goals and strategize ways to adjust in constantly changing markets. Let us know if we can assist.
Below are some frequently asked questions regarding the process of setting up beneficiaries or joint owners.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Q. Can I add a joint owner or beneficiary on I bonds?
Yes. As long as your funds are in a personal account. First, it’s important to note that unlike financial institutions, TreasuryDirect beneficiaries and second owners are set for each fund versus the account. For example, if you purchase two separate bonds for $5,000, you must designate a beneficiary or second owner for each fund held in your account. Your options within treasury direct for each personal holding are:
- Purchase individually without any second owner or beneficiary.
- Purchase with someone as the beneficiary (payable on death (POD) to another individual). You can only name one beneficiary per fund purchased. If you wish to have multiple beneficiaries, you need to make individual purchases and name beneficiaries for each fund.
- Purchase with someone else as the secondary owner. If you register as joint owners, you cannot name a beneficiary. However, at the death of one of the owners, the registration can be changed to add a beneficiary. If both you and the second owner (or beneficiary) die at the same time, the I-Bonds will go to your estate.
Q. Does adding someone as a secondary owner or beneficiary affect their annual purchase limit?
No. They can still buy $10,000 in their own account.
Q. How do I change or add a secondary owner or beneficiary?
Each ownership combination you set up in your TreasuryDirect account is called a registration. You can have as many registration combinations as you would like, and you can associate any one of your registrations to any bond in your account. Before making changes to a holding, you should review how they are currently set up and see which ones you need changed.
- Login to your account and click “Current Holdings” at the top. Then, scroll down to the Savings Bond section and select “Series I Savings Bond”. You will see a list of your bonds grouped by your existing registrations.
- If you need to make a change, you must create a new registration with the desired ownership combination. For example, let’s say you purchased a $10,000 bond and didn’t list a beneficiary. In such a case, only your name would appear as the registrant. Therefore, you would need to create another registration that includes both your name and your beneficiary’s name.
- To add a beneficiary, click “ManageDirect” and then under the “Manage My Account” section, select “Update my Registration List”. Select “Add a Registration”. Click “Beneficiary”. In this scenario, your personal information would be used in the “First-named registrant” section (as the owner). The “Second-Named Registrant” should be the beneficiary you’ve chosen.
- If you would like to use this new registration for all new bonds you buy in the future, check the “Make this my Preferred Registration” box at the bottom.
- When complete, select “Submit”. This new combination (your name and beneficiary name) will now be shown in your list of registrations. You only need to create a registration once. However, at this point it is not associated with any bonds yet, so you need to change the registration on your existing bonds.
Associate New Registration to Existing Bonds.
- Click on “Edit a Registration” under the “ManageDirect”
- Scroll down to the Saving Bond section and select “Series I Savings Bonds”. You will see a list of your I-Bonds. Check the box for the ones you would like to change. Choose “Select”. You will see a registration box at the bottom of the screen with a drop-down showing the various registrations you have created.
- Select the registration you want to use for this bond (in the above example, this would read as (Your Name TIN#, POD Beneficiary Name). Select “Submit”. If you’re still the primary owner, changing the registration doesn’t trigger taxes.
Q. I have a trust but purchased bonds as an individual, can I change ownership to the trust?
Yes, you can use FS Form 1851. An entity account for a trust or a business can’t have bonds with a second owner or a beneficiary. It’s important to note that a second owner or the beneficiary must be a person (it cannot be a trust or business).
Q. Can I redeem a portion of a bond?
No. You must liquidate an entire bond, so if you think that you might need a portion of the bond in the future, you may want to buy two smaller bonds versus one large one.
