Estimated tax overpayment to purchase Ibonds

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Ret2018
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Estimated tax overpayment to purchase Ibonds

Post by Ret2018 »

I'm trying to maximize annual purchase of I bonds. Can purchasean additional (to $10K limit) $5000 in Ibonds with tax overpayment. Has someone does this and how does it work? I submit my tax return (MJF) and it shows $10K overpayment. I complete form 8888 to indicate use overpayment to purchase bonds. I have a choice of doing so by deposit of overpayment into Treasury Direct or by purchase of paper bonds. If I chose deposit to Treasury Direct will it count against the $10K purchase limit? How quickly does this get processed, particulalry in light of delays in processing returns? Anything else I should be considering? And what happens if choose paper bonds? Thanks.
HomeStretch
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Re: Estimated tax overpayment to purchase Ibonds

Post by HomeStretch »

You can elect to receive up to $5k (maximum regardless of filing status) of your Federal income tax refund in paper I-Bonds. This is in addition to the annual $10k individual limit.

Form 8888 allows you to direct deposit tax refund dollars into your TreasuryDirect account to buy securities such as your annual individual purchase of up to $10k in I-Bonds. But if you want to purchase up to an additional $5k of I-Bonds with your tax refund, your only option on Form 8888 is to receive paper bonds. You may mail the paper I-Bonds with a manifest to TD for electronic conversion into your TD account.

You should receive the paper I-Bonds within 6 weeks or so of acceptance of your electronic filing submission.

For more information, check the FAQs on TD’s website or the BH I-Bond mega thread viewtopic.php?p=5943409#p5943409.
worlhis
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Re: Estimated tax overpayment to purchase Ibonds

Post by worlhis »

My understanding is that you can request up to $5,000 of your refund as a paper savings bond per tax filing. So if you're married but I enjoy you can request up to $5,000. If you and your spouse are filing married separately, you can each request up to $5000 per return.

This paper bond purchase is in addition to the $10,000 per person per year electronic bond maximum.

https://www.treasurydirect.gov/indiv/re ... eature.htm

https://thefinancebuff.com/overpay-taxe ... -tips.html
sman09
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Re: Estimated tax overpayment to purchase Ibonds

Post by sman09 »

So how does one overpay $10,000 in tax during the year to be able to request that the refund of this amount be as Paper bonds? I mean how to implement it - since tax deductions in the paycheck already take into account number of dependents, contribution to 401k, heath insurance etc.,

Thank you!
drk
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Re: Estimated tax overpayment to purchase Ibonds

Post by drk »

sman09 wrote: Mon Jan 17, 2022 6:48 pm So how does one overpay $10,000 in tax during the year to be able to request that the refund of this amount be as Paper bonds? I mean how to implement it - since tax deductions in the paycheck already take into account number of dependents, contribution to 401k, heath insurance etc.,

Thank you!
You can always cut the IRS a check, or whip out your credit card.
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sailaway
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Re: Estimated tax overpayment to purchase Ibonds

Post by sailaway »

drk wrote: Mon Jan 17, 2022 6:51 pm
sman09 wrote: Mon Jan 17, 2022 6:48 pm So how does one overpay $10,000 in tax during the year to be able to request that the refund of this amount be as Paper bonds? I mean how to implement it - since tax deductions in the paycheck already take into account number of dependents, contribution to 401k, heath insurance etc.,

Thank you!
You can always cut the IRS a check, or whip out your credit card.
You can also add additional withholdings to your W4, in a set dollar amount.
drk
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Re: Estimated tax overpayment to purchase Ibonds

Post by drk »

sailaway wrote: Mon Jan 17, 2022 6:54 pm You can also add additional withholdings to your W4, in a set dollar amount.
Also reasonable, although I prefer to minimize the time my money is on vacation.
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sman09
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Re: Estimated tax overpayment to purchase Ibonds

Post by sman09 »

Thank you drk and sailaway for the quick response.

This would be our first year of purchasing I-bonds (even electronic) and good to hear of this additional option also.

In the official website: https://www.treasurydirect.gov/indiv/pr ... glance.htm there is also an option to gift the I-Bonds and wanted to check on this:

If we gift our child an I-bond this year (besides investing in our own names), would the money in the I-bond account under Child's name be factored in along with money in 529 accounts when being considered for college scholarship?

Thanks again for the inputs.
Nver2Late
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Re: Estimated tax overpayment to purchase Ibonds

Post by Nver2Late »

I ran my taxes due estimate early January and added the 5K plus my tax shortage over safeharbor to my 4th quarter estimated tax payment due tomorrow, Jan 18. I will file for the refund as soon as all 1099s are received.
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worlhis
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Re: Estimated tax overpayment to purchase Ibonds

Post by worlhis »

sman09 wrote: Mon Jan 17, 2022 7:10 pm If we gift our child an I-bond this year (besides investing in our own names), would the money in the I-bond account under Child's name be factored in along with money in 529 accounts when being considered for college scholarship?
There is no need to gift this purchase... You can open a minor-linked account under your own primary account and purchase the bonds directly there
worlhis
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Re: Estimated tax overpayment to purchase Ibonds

Post by worlhis »

sman09 wrote: Mon Jan 17, 2022 6:48 pm So how does one overpay $10,000 in tax during the year to be able to request that the refund of this amount be as Paper bonds? I mean how to implement it - since tax deductions in the paycheck already take into account number of dependents, contribution to 401k, heath insurance etc.,

Thank you!
Remember it's a max of $5,000 per tax return, not per person.
Please see IRS form 1040-ES for estimated tax payments
https://www.irs.gov/forms-pubs/about-form-1040-es

One could make an estimated payment until January 18, 2022 for the tax year 2021. This way funds aren't held up too long: from when the payment goes through until they issue the bond. There's not much benefit to deducting extra throughout the year.
Last edited by worlhis on Tue Jan 18, 2022 6:18 am, edited 1 time in total.
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nps
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Re: Estimated tax overpayment to purchase Ibonds

Post by nps »

sman09 wrote: Mon Jan 17, 2022 6:48 pm So how does one overpay $10,000 in tax during the year to be able to request that the refund of this amount be as Paper bonds? I mean how to implement it - since tax deductions in the paycheck already take into account number of dependents, contribution to 401k, heath insurance etc.,

Thank you!
Go to IRS Direct Pay after the year is over and make an extension payment.
sman09
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Re: Estimated tax overpayment to purchase Ibonds

Post by sman09 »

Thank you Nver2Late, worlhis, and nps for your inputs.
worlhis wrote: Mon Jan 17, 2022 7:46 pm There is no need to gift this purchase... You can open a minor-linked account under your own primary account and purchase the bonds directly there
So would it mean one could purchase $20,000 (total) in both the parent’s names and additional $10,000 in each child’s name (minor-linked account) for each year?

Any points to keep in mind when opening such an account (minor-linked account) – e.g., do children get full control when they turn 18 to withdraw (spend) the money as they deem fit (instead of say for purpose of education as the parents would have originally intended)
worlhis wrote: Mon Jan 17, 2022 7:55 pm Remember it's a max of $5,000 per tax return, not per person.
Thank you for the clarification.
worlhis wrote: Mon Jan 17, 2022 7:55 pm
Please see IRS form 1040-ES for estimated tax payments
https://www.irs.gov/forms-pubs/about-form-1040-es

One could make an estimated payment until January 18, 2022 for the tax year 2021. This way funds aren't held up too long: from when the payment goes through until they issue the bond. There's not much benefit to deducting extra throughout the year.
Is nps referring to the same procedure when they refer to Direct Pay?
nps wrote: Mon Jan 17, 2022 8:32 pm
Go to IRS Direct Pay after the year is over and make an extension payment.

So one could complete the form: https://www.irs.gov/forms-pubs/about-form-1040-es today and make the additional $5,000 payment using “You can always cut the IRS a check, or whip out your credit card” as “drk” mentioned above?

Is there also a way to make this additional payment as a check along with one’s 2021 tax returns and may be check a box to indicate request to apply money towards the paper bond?

If it’s a little involved, would perhaps just go ahead with purchasing e-bonds to get started as we have never bought one before.

Thanks again!
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nps
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Re: Estimated tax overpayment to purchase Ibonds

Post by nps »

sman09 wrote: Tue Jan 18, 2022 11:00 am
worlhis wrote: Mon Jan 17, 2022 7:55 pm
Please see IRS form 1040-ES for estimated tax payments
https://www.irs.gov/forms-pubs/about-form-1040-es

One could make an estimated payment until January 18, 2022 for the tax year 2021. This way funds aren't held up too long: from when the payment goes through until they issue the bond. There's not much benefit to deducting extra throughout the year.
Is nps referring to the same procedure when they refer to Direct Pay?
The same website, not the same option.
sman09 wrote: Tue Jan 18, 2022 11:00 am
nps wrote: Mon Jan 17, 2022 8:32 pm
Go to IRS Direct Pay after the year is over and make an extension payment.
So one could complete the form: https://www.irs.gov/forms-pubs/about-form-1040-es today and make the additional $5,000 payment using “You can always cut the IRS a check, or whip out your credit card” as “drk” mentioned above?

Is there also a way to make this additional payment as a check along with one’s 2021 tax returns and may be check a box to indicate request to apply money towards the paper bond?
I was referring to Direct Pay. Just select extension and make whatever payment you want. The paper version is Form 4868 but I find the online method simpler. As for the estimated tax option on Direct Pay, I assume it works the same but not sure how long it will be available for tax year 2021.

As far as I know, there is no way to make an overpayment directly on the tax return. That would certainly be easier.
hoofaman
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Re: Estimated tax overpayment to purchase Ibonds

Post by hoofaman »

On a related note, does requesting your refund in I Bonds create a log jam or are they issued quickly? I ask because I have a large refund due, about 8k, so I could opt to take 5k in paper I Bonds.

In the past I have always received a refund via direct deposit and it's always been fast. I don't have any immediate need for the money so I like the idea of more I Bonds, but I am afraid of this creating some year long log jam fiasco. Has it been smooth for others?
worlhis
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Re: Estimated tax overpayment to purchase Ibonds

Post by worlhis »

hoofaman wrote: Wed Jan 19, 2022 6:31 am On a related note, does requesting your refund in I Bonds create a log jam or are they issued quickly? I ask because I have a large refund due, about 8k, so I could opt to take 5k in paper I Bonds.

In the past I have always received a refund via direct deposit and it's always been fast. I don't have any immediate need for the money so I like the idea of more I Bonds, but I am afraid of this creating some year long log jam fiasco. Has it been smooth for others?
The Treasury site says it's about 3 weeks after your return is processed. I am doing this for the first time also, but it shouldn't be more than a few weeks past your direct deposit refund:

"How long will it take to receive my paper savings bonds?
They will be issued and mailed after the IRS processes your return. Once your savings bonds are issued, you should get them within three weeks. If you're having a portion of your refund deposited directly into your bank account, you may receive your refund before your bonds."

https://www.treasurydirect.gov/indiv/re ... ur%20bonds.

The IRS site shows the same:

20. How long will it take to get my savings bonds?
Your savings bonds are ordered after the IRS completes processing your tax return. Once ordered, it may take up to three weeks for your savings bonds to arrive in the mail. If you're having a portion of your refund deposited directly into your bank account, you may receive your refund before your savings bonds arrive by mail.

https://www.irs.gov/refunds/using-your- ... ings-bonds

Once you receive your paper bonds, you can convert them into your electronic account on TreasuryDirect using their SmartExchange program
https://www.treasurydirect.gov/indiv/re ... geinfo.htm
nolesrule
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Re: Estimated tax overpayment to purchase Ibonds

Post by nolesrule »

sman09 wrote: Tue Jan 18, 2022 11:00 am Any points to keep in mind when opening such an account (minor-linked account) – e.g., do children get full control when they turn 18 to withdraw (spend) the money as they deem fit (instead of say for purpose of education as the parents would have originally intended)
Money you put in the linked custodial account for a minor is a completed gift, and counts toward annual gift exclusions and the possible need to file a gift tax return. Additionally, this indeed means the money belongs to the children. While they are minors any money withdrawn must be used for their benefit and when they reach the age of majority the money is theirs to do with as they please.
hoofaman
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Re: Estimated tax overpayment to purchase Ibonds

Post by hoofaman »

worlhis wrote: Wed Jan 19, 2022 6:53 am
hoofaman wrote: Wed Jan 19, 2022 6:31 am On a related note, does requesting your refund in I Bonds create a log jam or are they issued quickly? I ask because I have a large refund due, about 8k, so I could opt to take 5k in paper I Bonds.

In the past I have always received a refund via direct deposit and it's always been fast. I don't have any immediate need for the money so I like the idea of more I Bonds, but I am afraid of this creating some year long log jam fiasco. Has it been smooth for others?
The Treasury site says it's about 3 weeks after your return is processed. I am doing this for the first time also, but it shouldn't be more than a few weeks past your direct deposit refund:

"How long will it take to receive my paper savings bonds?
They will be issued and mailed after the IRS processes your return. Once your savings bonds are issued, you should get them within three weeks. If you're having a portion of your refund deposited directly into your bank account, you may receive your refund before your bonds."

https://www.treasurydirect.gov/indiv/re ... ur%20bonds.

The IRS site shows the same:

20. How long will it take to get my savings bonds?
Your savings bonds are ordered after the IRS completes processing your tax return. Once ordered, it may take up to three weeks for your savings bonds to arrive in the mail. If you're having a portion of your refund deposited directly into your bank account, you may receive your refund before your savings bonds arrive by mail.

https://www.irs.gov/refunds/using-your- ... ings-bonds

Once you receive your paper bonds, you can convert them into your electronic account on TreasuryDirect using their SmartExchange program
https://www.treasurydirect.gov/indiv/re ... geinfo.htm
Thank you so much for the reply and information, I think I will be doing this as well!
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Re: Estimated tax overpayment to purchase Ibonds

Post by Yarlonkol12 »

What happens if discover the need to amend the tax filing in the future, or if additional tax is assessed for a prior tax year where you received your refund as I-Bonds.

I am assuming it doesn't matter if you take I-Bonds or cash as a refund, if you are assessed additional tax in the future on that return you would just pay the additional tax assessment in dollars and you would get to keep the IBonds, is that right?
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Re: Estimated tax overpayment to purchase Ibonds

Post by samsoes »

Yarlonkol12 wrote: Wed Jan 19, 2022 4:44 pm What happens if discover the need to amend the tax filing in the future, or if additional tax is assessed for a prior tax year where you received your refund as I-Bonds.

I am assuming it doesn't matter if you take I-Bonds or cash as a refund, if you are assessed additional tax in the future on that return you would just pay the additional tax assessment in dollars and you would get to keep the IBonds, is that right?
Correct.
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Yarlonkol12
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Re: Estimated tax overpayment to purchase Ibonds

Post by Yarlonkol12 »

Thank you! One more question for you all,

From the IRS website:

https://www.irs.gov/refunds/using-your- ... ings-bonds

"Savings bonds purchased with a tax refund will be issued as paper bond certificates in your name. If you are married and filed a joint return, the savings bonds will be issued in your name and your spouse's name. If you purchase savings bonds for someone else, the bonds will be issued in the name(s) that you listed on Form 8888."

My wife and I each have a treasury direct account in our individual names. For people MFJ, does this mean either one of us could convert these paper I bonds issued in both of our names to either of our individual TD accounts? I couldn't find this scenario on the TD website
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worlhis
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Re: Estimated tax overpayment to purchase Ibonds

Post by worlhis »

Yarlonkol12 wrote: Wed Jan 19, 2022 4:51 pm Thank you! One more question for you all,

From the IRS website:

https://www.irs.gov/refunds/using-your- ... ings-bonds

"Savings bonds purchased with a tax refund will be issued as paper bond certificates in your name. If you are married and filed a joint return, the savings bonds will be issued in your name and your spouse's name. If you purchase savings bonds for someone else, the bonds will be issued in the name(s) that you listed on Form 8888."

My wife and I each have a treasury direct account in our individual names. For people MFJ, does this mean either one of us could convert these paper I bonds issued in both of our names to either of our individual TD accounts? I couldn't find this scenario on the TD website
That's an interesting find! Maybe that's how they used to do it, it doesn't look like that's how it works any longer. I'm assuming that's just the default in case form 8888 isn't used to specify how the bonds should be issued.

See form 8888 instructions: "Lines 5b and 6b:
Enter the owner’s name for this bond
registration. This can be you, your spouse,
or someone else
.

This page describes how the name you enter on form 8888 can be specific to how you want the bonds issued:
https://www.irs.gov/refunds/now-you-can ... tax-refund

I would pick one of your names to issue the full bond in. Or split it in half and you could issue up to $2,500 for each of you separately to load into each of your conversation-linked accounts.
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