I-bond Tax Issue

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OpenMinded1
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I-bond Tax Issue

Post by OpenMinded1 »

I think I'm correct in stating that digital I-bonds can't be jointly owned. It appears the choices are either list the owner only, or list the owner and specify a person that is payable upon death (POD) of the owner. If I'm interpreting (POD) right, it seems like this could be a downside for I-bonds. It's my understanding that my wife can take over my IRAs upon my death. She doesn't have to right away take all the money from their sale and pay taxes on it. With digital I-bonds, it seems like they are cashed in as soon as the Treasury is informed of the death of the owner, and the person listed to POD would be issued all the proceeds. They would in turn have to pay taxes on them. In other word, the person listed to POD wouldn't be able to take over the bonds to continue deferring payment of taxes.

Correct me if I'm wrong about this, or if maybe it's not a major negative for I-bonds.
Silk McCue
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Re: I-bond Tax Issue

Post by Silk McCue »

According to TreasuryDirect you can be co-owners of an I Bond.

https://www.treasurydirect.gov/indiv/re ... r.htm#owes

Cheers
Topic Author
OpenMinded1
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Re: I-bond Tax Issue

Post by OpenMinded1 »

Silk McCue wrote: Thu Jun 17, 2021 8:41 pm According to TreasuryDirect you can be co-owners of an I Bond.

https://www.treasurydirect.gov/indiv/re ... r.htm#owes

Cheers
I know that paper I-bonds can be co-owned, but I don't think that digital ones can be owned jointly. I'll look some more, but when I bought some digital I-bonds recently, I didn't see any option on treasury direct for a co-owner. I think I also read that today on the Treasury Direct site somewhere. I'll look some more, but I think I'm right.
Topic Author
OpenMinded1
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Re: I-bond Tax Issue

Post by OpenMinded1 »

OpenMinded1 wrote: Thu Jun 17, 2021 8:56 pm
Silk McCue wrote: Thu Jun 17, 2021 8:41 pm According to TreasuryDirect you can be co-owners of an I Bond.

https://www.treasurydirect.gov/indiv/re ... r.htm#owes

Cheers
I know that paper I-bonds can be co-owned, but I don't think that digital ones can be owned jointly. I'll look some more, but when I bought some digital I-bonds recently, I didn't see any option on treasury direct for a co-owner. I think I also read that today on the Treasury Direct site somewhere. I'll look some more, but I think I'm right.
Okay. You are right, and I'm glad. :D I finally found it here: https://www.treasurydirect.gov/indiv/re ... ndividual.

According to Treasury Direct: "Only the owner may make transactions. If he or she dies, the beneficiary becomes the only owner. The beneficiary can’t be an entity. The registration says “PAYABLE ON DEATH,” or “POD.” Example of registration: JOHN DOE POD TO JANE DOE"

The above statement describes the way I have my electronic bonds set up. Guess she can still take them over even though the term "POD" is used.
Last edited by OpenMinded1 on Thu Jun 17, 2021 9:21 pm, edited 1 time in total.
BrokerageZelda
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Re: I-bond Tax Issue

Post by BrokerageZelda »

POD on savings bonds (both paper and digital) does not mean that the bond is automatically paid out/cashed out upon the death of the primary owner, it means that the bond becomes 'payable to the order of' the beneficiary instead; the beneficiary can either cash it directly or have it reissued into their individual name by showing proof of death for the primary owner to a local bank (for paper bonds) or to TreasuryDirect.

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

TreasuryDirect does not do 'joint accounts'; every account has one owner. You can edit the 'Registration' on an electronic bond to add a beneficiary (POD) or to change to a 'Primary Owner/Secondary Owner' (WITH) registration. If you register a bond as A WITH B and then grant "View/Transact" rights to B, B can log in to their own TD account, view the bond, and cash it out to their own bank account - just like co-ownership, except that A gets the tax bill if B cashes the bond, and B will have to have the bond reissued if A dies, instead of being able to automatically treat the bond as their own.

"How Do I?" page for instructions for common tasks: https://www.treasurydirect.gov/indiv/he ... howdoi.htm
Topic Author
OpenMinded1
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Re: I-bond Tax Issue

Post by OpenMinded1 »

BrokerageZelda wrote: Thu Jun 17, 2021 9:12 pm POD on savings bonds (both paper and digital) does not mean that the bond is automatically paid out/cashed out upon the death of the primary owner, it means that the bond becomes 'payable to the order of' the beneficiary instead; the beneficiary can either cash it directly or have it reissued into their individual name by showing proof of death for the primary owner to a local bank (for paper bonds) or to TreasuryDirect.

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

TreasuryDirect does not do 'joint accounts'; every account has one owner. You can edit the 'Registration' on an electronic bond to add a beneficiary (POD) or to change to a 'Primary Owner/Secondary Owner' (WITH) registration. If you register a bond as A WITH B and then grant "View/Transact" rights to B, B can log in to their own TD account, view the bond, and cash it out to their own bank account - just like co-ownership, except that A gets the tax bill if B cashes the bond, and B will have to have the bond reissued if A dies, instead of being able to automatically treat the bond as their own.

"How Do I?" page for instructions for common tasks: https://www.treasurydirect.gov/indiv/he ... howdoi.htm
Thanks for the information. I think the "POD" option is the right one for my situation, and I'm glad to know it doesn't mean the bonds actually have to be cashed in upon my death.
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Eagle33
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Re: I-bond Tax Issue

Post by Eagle33 »

Do the I bonds get reissued to the beneficiary with the previous fixed rate or the rate available on date of reissue?
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
BrokerageZelda
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Re: I-bond Tax Issue

Post by BrokerageZelda »

Eagle33 wrote: Fri Jun 18, 2021 12:35 am Do the I bonds get reissued to the beneficiary with the previous fixed rate or the rate available on date of reissue?
A reissued bond keeps the same issue date as the original bond, and since the interest rate of an I Bond depends on the issue date, that will stay the same as well.
Topic Author
OpenMinded1
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Re: I-bond Tax Issue

Post by OpenMinded1 »

delete
Topic Author
OpenMinded1
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Re: I-bond Tax Issue

Post by OpenMinded1 »

Here's a link related to savings bond tax issues. Note that it isn't from Treasury Direct though. Not from the horse's mouth. https://altmanassociates.net/understand ... ngs-bonds/
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anon_investor
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Re: I-bond Tax Issue

Post by anon_investor »

Silk McCue wrote: Thu Jun 17, 2021 8:41 pm According to TreasuryDirect you can be co-owners of an I Bond.

https://www.treasurydirect.gov/indiv/re ... r.htm#owes

Cheers
The co-owner secondary owner can also be granted transaction rights to redeem the I Bond from their own Treasury Direct account. I have my spouse as a co-owner on all my I Bonds with transaction rights, my spouse he me as a co-owner on my spouse's I Bond's with transaction rights.
Last edited by anon_investor on Fri Jun 18, 2021 7:43 am, edited 1 time in total.
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HueyLD
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Re: I-bond Tax Issue

Post by HueyLD »

OpenMinded1 wrote: Thu Jun 17, 2021 8:21 pm I think I'm correct in stating that digital I-bonds can't be jointly owned. It appears the choices are either list the owner only, or list the owner and specify a person that is payable upon death (POD) of the owner. If I'm interpreting (POD) right, it seems like this could be a downside for I-bonds. It's my understanding that my wife can take over my IRAs upon my death. She doesn't have to right away take all the money from their sale and pay taxes on it. With digital I-bonds, it seems like they are cashed in as soon as the Treasury is informed of the death of the owner, and the person listed to POD would be issued all the proceeds. They would in turn have to pay taxes on them. In other word, the person listed to POD wouldn't be able to take over the bonds to continue deferring payment of taxes.

Correct me if I'm wrong about this, or if maybe it's not a major negative for I-bonds.
I posted the following in another thread and here it is:

“Per IRS Pub 559:

“ U.S. savings bonds acquired from dece- dent.

If series EE or series I U.S. savings bonds, owned by a cash method taxpayer who reported the interest each year, or by an accrual method taxpayer, are transferred because of death, the increase in value of the bonds (inter- est earned) in the year of death up to the date of death must be reported on the decedent's final return. The transferee (estate or beneficiary) re- ports on its return only the interest earned after the date of death.
….
If the bonds transferred because of death were owned by a cash method taxpayer who chose not to report the interest each year and had purchased the bonds entirely with personal funds, interest earned before death must be re- ported in one of the following ways.

1. The person (executor, administrator, etc.) who is required to file the decedent's final income tax return can elect to include all of the interest earned on the bonds before the decedent's death on the return. The transferee (estate or beneficiary) then in- cludes only the interest earned after the date of death on its return.

2. If the election in (1), above, wasn't made, the interest earned to the date of death is income in respect of the decedent and isn't included on the decedent's final re- turn. In this case, all of the interest earned before and after the decedent's death is income to the transferee (estate or benefi- ciary). A transferee who uses the cash method of accounting and who has chosen not to report the interest annually may defer reporting any of it as income un- til the bonds are either cashed or reach the date of maturity, whichever is earlier. In the year the interest is reported, the transferee may claim a deduction for any federal estate tax paid that arose because of the part of interest (if any) included in the decedent's estate.”
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HueyLD
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Re: I-bond Tax Issue

Post by HueyLD »

anon_investor wrote: Fri Jun 18, 2021 7:22 am
Silk McCue wrote: Thu Jun 17, 2021 8:41 pm According to TreasuryDirect you can be co-owners of an I Bond.

https://www.treasurydirect.gov/indiv/re ... r.htm#owes

Cheers
The co-owner can also be granted transaction rights to redeem the I Bond from their own Treasury Direct account. I have my spouse as a co-owner on all my I Bonds with transaction rights, my spouse he me as a co-owner on my spouse's I Bond's with transaction rights.
Electronic savings bonds do not allow co-ownership. It is primary owner with secondary owner or beneficiary. And the secondary owner is a de facto beneficiary even though the primary owner can grant transaction rights to the secondary owner. And such rights can be revoked at any time while the primary owner is alive and expire upon primary owner’s death. I have posted about such ownership constraints many times in many I bond threads.
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anon_investor
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Re: I-bond Tax Issue

Post by anon_investor »

HueyLD wrote: Fri Jun 18, 2021 7:36 am
anon_investor wrote: Fri Jun 18, 2021 7:22 am
Silk McCue wrote: Thu Jun 17, 2021 8:41 pm According to TreasuryDirect you can be co-owners of an I Bond.

https://www.treasurydirect.gov/indiv/re ... r.htm#owes

Cheers
The co-owner can also be granted transaction rights to redeem the I Bond from their own Treasury Direct account. I have my spouse as a co-owner on all my I Bonds with transaction rights, my spouse he me as a co-owner on my spouse's I Bond's with transaction rights.
Electronic savings bonds do not allow co-ownership. It is primary owner with secondary owner or beneficiary. And the secondary owner is a de facto beneficiary even though the primary owner can grant transaction rights to the secondary owner. And such rights can be revoked at any time while the primary owner is alive and expire upon primary owner’s death. I have posted about such ownership constraints many times in many I bond threads.
Yes, co-owner was the wrong word, primary/secondary owner is more accurate (I updated my post above to reflect this). Aside from the fact that secondary ownership can be revoked at any time, secondary ownership (during the primary owner's life time) granted transaction rights operates similarly to co-ownership in that the secondary owner can redeem the I Bonds from their own TD account. Upon the primary owner's death, the secondary owner has to take steps to transfer the I Bonds to their TD account, so it is not automatic like a joint account.

But having the ability to name a secondary owner and grant them transaction rights, is beneficial when using I Bonds as part of an emergency fund. It means if I have no access to my TD account, my spouse and transact as a secondary owner granted transaction rights and redeem I Bonds.
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HueyLD
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Re: I-bond Tax Issue

Post by HueyLD »

You said:”But having the ability to name a secondary owner and grant them transaction rights, is beneficial when using I Bonds as part of an emergency fund. It means if I have no access to my TD account, my spouse and transact as a secondary owner granted transaction rights and redeem I Bonds.”

Yes, +100!
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