I Bonds for a minor

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Sky Man 33
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I Bonds for a minor

Post by Sky Man 33 »

There have been a number of recent posts on I bonds, which make it seem like a no-brainer to move $10k from a high-yield savings account (currently yielding around 0.5%) and move it into I bonds. Aside from myself, I'm thinking of doing the same for my infant. Are there any potential downsides that I'm not considering, or is investing in I bonds for the both of us the no-brainer that I think it is (compared to high-yield savings)?
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retired@50
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Re: I Bonds for a minor

Post by retired@50 »

Sky Man 33 wrote: Wed Apr 21, 2021 10:18 am There have been a number of recent posts on I bonds, which make it seem like a no-brainer to move $10k from a high-yield savings account (currently yielding around 0.5%) and move it into I bonds. Aside from myself, I'm thinking of doing the same for my infant. Are there any potential downsides that I'm not considering, or is investing in I bonds for the both of us the no-brainer that I think it is (compared to high-yield savings)?
I'd start here: https://www.treasurydirect.gov/indiv/pl ... _gifts.htm

It appears that I-Bonds can be given to minors as a gift if the adult custodian creates a "minor linked account".


They can also be tax free if the money is spent on education.
Link: https://www.treasurydirect.gov/indiv/pl ... cation.htm

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Wiggums
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Re: I Bonds for a minor

Post by Wiggums »

I-bonds would be a great investment for your infant.

My kids also had a brokerage account to save for college. A 529 is another great option for educational savings.
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Grt2bOutdoors
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Re: I Bonds for a minor

Post by Grt2bOutdoors »

It yields better than a savings account but for real growth I would suggest looking into buying VTI or vtsax the mutual fund equivalent of VTI. If you do buy the I bond, it will be held in a minor linked account, at age 18, Treasury Direct will convert it to the child’s own account. If you do redeem bonds at any time between now and 18, the account will remind you that the funds belong to the child and you are attesting that the redeemed proceeds will be used for their benefit (ask me how I know?). But they will still permit the redemption - no issues. I actually used the redeemed proceeds to get out of 0 fixed rate bonds into a positive fixed rate offering a few years ago.

You can choose to recognize interest accrued each year by filing a return for your child, first $1,100 of interest is without taxation on federal returns. No tax liability when you file and practically none at redemption. Or you can just let it accrue and if interest at redemption is less than $1,100 still likely to be free of federal taxation.
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Topic Author
Sky Man 33
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Re: I Bonds for a minor

Post by Sky Man 33 »

Thank you all for the replies. I already created a minor linked account, but wanted to get some opinions on here before actually pulling the trigger. I realize that a stock fund such as VTI is likely to provide higher growth over the long-term, but at this point I'm mainly interested in a safe investment for my son and am looking at I bonds as a better alternative to a high yield savings account. It looks like the best course of action is to defer taxes on my own I bond investments, but to pay them annually on my son's investments while he has minimal income (I'm assuming I can choose different options for the two of us even though the accounts are linked).
majiaknight
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Re: I Bonds for a minor

Post by majiaknight »

Sky Man 33 wrote: Wed Apr 21, 2021 10:18 am ...Aside from myself, I'm thinking of doing the same for my infant. Are there any potential downsides that I'm not considering, or is investing in I bonds for the both of us the no-brainer that I think it is (compared to high-yield savings)?
My strategy is to prioritize EE savings (double in value if holding 20 years meaning guaranteed 3.5% annual return) over I Bond in TD minor's account as I only plan to use them when my kid is around college age. I do plan to buy $10K I Bond in minor's account in late May this year. I also invest in kid's 529 and UTMA using low cost stock index funds, and has done annual tax-gain harvesting in UTMA based on kiddie tax rule.
noriskfinance
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Re: I Bonds for a minor

Post by noriskfinance »

Are you suggesting I could get up to $1100 in tax free interest with an account in my minor son's name? But how would i force turbotax to produce a return for him. He is a dependent on mine.
Grt2bOutdoors wrote: Wed Apr 21, 2021 11:17 am It yields better than a savings account but for real growth I would suggest looking into buying VTI or vtsax the mutual fund equivalent of VTI. If you do buy the I bond, it will be held in a minor linked account, at age 18, Treasury Direct will convert it to the child’s own account. If you do redeem bonds at any time between now and 18, the account will remind you that the funds belong to the child and you are attesting that the redeemed proceeds will be used for their benefit (ask me how I know?). But they will still permit the redemption - no issues. I actually used the redeemed proceeds to get out of 0 fixed rate bonds into a positive fixed rate offering a few years ago.

You can choose to recognize interest accrued each year by filing a return for your child, first $1,100 of interest is without taxation on federal returns. No tax liability when you file and practically none at redemption. Or you can just let it accrue and if interest at redemption is less than $1,100 still likely to be free of federal taxation.
ivgrivchuck
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Re: I Bonds for a minor

Post by ivgrivchuck »

Sky Man 33 wrote: Wed Apr 21, 2021 10:18 am There have been a number of recent posts on I bonds, which make it seem like a no-brainer to move $10k from a high-yield savings account (currently yielding around 0.5%) and move it into I bonds. Aside from myself, I'm thinking of doing the same for my infant. Are there any potential downsides that I'm not considering, or is investing in I bonds for the both of us the no-brainer that I think it is (compared to high-yield savings)?
That's a great idea (I'm planning on doing something similar). Something to keep in my mind:

- If your child is the sole owner of those bonds, then its his/her money. You can't take it back (even in the unfortunate case that your relationship completely breaks down). He/She is responsible for paying taxes.

- If your child is the primary owner and you are the secondary owner, and your money is used to purchase the bonds, then my understanding (I'm not a lawyer) is that you can redeem the bonds until he/she turns 18. In all cases you're responsible for taxes. After he/she turns 18, he/she is the primary owner and the only person who can redeem the bonds, you are still responsible for taxes.
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ivgrivchuck
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Re: I Bonds for a minor

Post by ivgrivchuck »

noriskfinance wrote: Wed Apr 21, 2021 12:41 pm Are you suggesting I could get up to $1100 in tax free interest with an account in my minor son's name? But how would i force turbotax to produce a return for him. He is a dependent on mine.
You file a tax return for him. You can't "force" turbotax to produce a return for him based on your return. You just create a separate return.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Grt2bOutdoors
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Re: I Bonds for a minor

Post by Grt2bOutdoors »

ivgrivchuck wrote: Wed Apr 21, 2021 3:16 pm
noriskfinance wrote: Wed Apr 21, 2021 12:41 pm Are you suggesting I could get up to $1100 in tax free interest with an account in my minor son's name? But how would i force turbotax to produce a return for him. He is a dependent on mine.
You file a tax return for him. You can't "force" turbotax to produce a return for him based on your return. You just create a separate return.
+1. Exactly, just don’t forget to check the box that says “can you be claimed as a dependent on another return”? Check yes. . And to clarify, any monies given to a child is a completed gift, it’s not your money any longer, it’s the child’s.
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Grt2bOutdoors
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Re: I Bonds for a minor

Post by Grt2bOutdoors »

Sky Man 33 wrote: Wed Apr 21, 2021 12:10 pm Thank you all for the replies. I already created a minor linked account, but wanted to get some opinions on here before actually pulling the trigger. I realize that a stock fund such as VTI is likely to provide higher growth over the long-term, but at this point I'm mainly interested in a safe investment for my son and am looking at I bonds as a better alternative to a high yield savings account. It looks like the best course of action is to defer taxes on my own I bond investments, but to pay them annually on my son's investments while he has minimal income (I'm assuming I can choose different options for the two of us even though the accounts are linked).
Go with the I bond, it’s safe, it currently yields more than 0.1 percent and yes you can defer your own bonds interest and you can declare your minors interest earned annually.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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