An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

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oneleaf
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An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by oneleaf »

I mentioned this in a different thread, but I wanted to make a new thread for this to see if there is something I am missing with this strategy.

In 2020, I already bought $10K of I-Bonds and $10K of EE-Bonds. My wife did the same, so we are both maxed out.

I am considering the following strategy, for the following reasons:
  • Bond yields have collapsed, and I want to preserve more money in US Savings Bonds to hedge the possibility that the rate environment is a very longterm trend (negative real rates).
  • The 0.2% I-Bond could be the best rate we will see in awhile.
  • The 3.5% effective EE-Bond rate (if held for 20 years) could also be the best we will see in awhile, and is WAY better than the 30 year treasury yield. This "deal" may also go away before next year.
The strategy is based on the following rules I have found on TreasuryDirect.gov:
  • TreasuryDirect allows purchasing of gift bonds that do not count toward your annual limit.
  • The bonds count towards the annual limit of the recipient on the year they are delivered.
  • You can hold the bonds in your "Gift Box" for an indefinite amount of time.
  • You can add a co-owner or POD beneficiary after they are delivered.
My strategy:
  • Buy another $10K in I-Bonds and $10K in EE-Bonds as gifts for my wife.
  • Have my wife do the same for me.
  • We keep them in the "Gift Box" for a year.
  • Deliver them to each other in 2021.
  • After delivery, change registration to add the co-owner/POD as we see fit (we would put each other as co-owner).
In the long run, we can still only buy $10K per year of each issue, but this allows us to at least grab a few extra while the rates are still not terrible. This current environment is certainly a time where the discrepancy between Savings Bonds and marketable securities is very wide, regardless of how good the deal is on an absolute term. Usually, I wouldn't try so hard to get 3.5% nominal over 20 years and 0.2% real over 30... but as someone with a bond-heavy portfolio, I think this is one of those rare times where the effort makes sense. Thoughts?
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by Grt2bOutdoors »

Run it by the folks at the Department of the Treasury, my bet is they will not be so amused! You might find even if you don’t run it by them that they will let you buy them now as gifts but they don’t start earning interest until you actually deliver them! :twisted:
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oneleaf
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by oneleaf »

Grt2bOutdoors wrote: Sun Mar 08, 2020 11:59 am Run it by the folks at the Department of the Treasury, my bet is they will not be so amused! You might find even if you don’t run it by them that they will let you buy them now as gifts but they don’t start earning interest until you actually deliver them! :twisted:
Gifts can be held indefinitely in a Gift Box, and they do start earning interest right away. I also don't see this as a major loophole because you are still limited to how much you can receive and/or buy a year. It's not exactly a slam dunk.

I get the skepticism, which is why I started a new thread... I'm trying to get some more constructive insights from people who have already done this or has at least read the rules carefully. I know for a fact you can hold gifts indefinitely and they continue to earn interest, so I don't think there are any gotchas here, but I wanted to make sure.

Ah, finally found there are others here who have done this, and it works as I expected:
- One post: viewtopic.php?p=400595#p400595
- Another: viewtopic.php?p=1303498#p1303506
Makefile
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by Makefile »

I know I've read elsewhere that you can get extra savings bonds by buying them in the name of your living trust. Perhaps you could even find a template online.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by Angst »

oneleaf wrote: Sun Mar 08, 2020 12:08 pmAh, finally found there are others here who have done this, and it works as I expected:
- One post: viewtopic.php?p=400595#p400595
- Another: viewtopic.php?p=1303498#p1303506
Well... in your position, I think I might give it a try, and I go with sscritic's take on things anytime I can get it. :D (2nd thread linked) I also agree that next year, when the fixed rate on I Bonds is presumably at (or below?) 0.0% would be a good time to "deliver" your gifts to each other; surely you wouldn't want to wait 30 years to discover we were wrong about all of this!

I didn't read entirely through either of the thread links you posted above. Did anyone actually mention spouses having successfully completed this gift exchange in a subsequent year?
absolute zero
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by absolute zero »

Bumping this old thread to see if anyone has done something similar to what OP has described? Seems like a very effective way to put a significant sum of money into i bonds all at once.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by oneleaf »

absolute zero wrote: Fri Nov 12, 2021 8:28 pm Bumping this old thread to see if anyone has done something similar to what OP has described? Seems like a very effective way to put a significant sum of money into i bonds all at once.
I ended up not doing this, but I sorta wish I did. In 2019, fixed rates were 0.5% and then 0.2% in early 2020... I had a feeling those were the best rates we'd see in awhile, so I wanted to front load a few extra years worth. But now at 0%, I'd probably not bother front loading and just buy annually as normal.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by ObiQuiet »

Thank you for posting this - I hadn't come across the technique before, but am doing it now. Nice to have an emergency fund that won't lose power.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by ivgrivchuck »

A very interesting trick. I wasn't aware of this. I'm considering using this.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by langelgjm »

Pretty clever. I don't see a reason it wouldn't work. I considered doing it myself, but I really doubt I bond rules will change in the next 60 days, and for EE bonds I don't want double the amount "maturing" (hitting the guaranteed doubling) in the same year 20 years from now.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by oneleaf »

langelgjm wrote: Sun Nov 14, 2021 11:25 am Pretty clever. I don't see a reason it wouldn't work. I considered doing it myself, but I really doubt I bond rules will change in the next 60 days, and for EE bonds I don't want double the amount "maturing" (hitting the guaranteed doubling) in the same year 20 years from now.
Yep, that is why I decided not to do this with the EE bonds. All doubling in the same year and redeemed is a big tax bill.

I think March 2020 was the only obvious time it made sense to do this with I bonds. It was so obvious that rates would be zero in the following month, but we still had a month to front load on stale fixed rates.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by ivgrivchuck »

oneleaf wrote: Sun Mar 08, 2020 11:52 am [*]You can hold the bonds in your "Gift Box" for an indefinite amount of time.
So technically one could buy I-bonds for the next 10 years, and then donate them year by year. There is nothing illegal about this, but it might be considered abuse. Hmm...
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by MrJedi »

ivgrivchuck wrote: Sun Nov 14, 2021 8:30 pm
oneleaf wrote: Sun Mar 08, 2020 11:52 am [*]You can hold the bonds in your "Gift Box" for an indefinite amount of time.
So technically one could buy I-bonds for the next 10 years, and then donate them year by year. There is nothing illegal about this, but it might be considered abuse. Hmm...
You would effectively lock up the funds for all those years until you can get them gifted out.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by ivgrivchuck »

MrJedi wrote: Sun Nov 14, 2021 8:59 pm
ivgrivchuck wrote: Sun Nov 14, 2021 8:30 pm
oneleaf wrote: Sun Mar 08, 2020 11:52 am [*]You can hold the bonds in your "Gift Box" for an indefinite amount of time.
So technically one could buy I-bonds for the next 10 years, and then donate them year by year. There is nothing illegal about this, but it might be considered abuse. Hmm...
You would effectively lock up the funds for all those years until you can get them gifted out.
It seems like that it behaves like N year laddered CD that you cannot break, and that you can only create in the name of another person. A super weird thing.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by exodusNH »

oneleaf wrote: Sun Nov 14, 2021 1:45 pm
langelgjm wrote: Sun Nov 14, 2021 11:25 am Pretty clever. I don't see a reason it wouldn't work. I considered doing it myself, but I really doubt I bond rules will change in the next 60 days, and for EE bonds I don't want double the amount "maturing" (hitting the guaranteed doubling) in the same year 20 years from now.
Yep, that is why I decided not to do this with the EE bonds. All doubling in the same year and redeemed is a big tax bill.

I think March 2020 was the only obvious time it made sense to do this with I bonds. It was so obvious that rates would be zero in the following month, but we still had a month to front load on stale fixed rates.
They double at 20, but don't mature until 30. While between 20 and 30 they will only earn whatever interest they were issued at (0.10 right now), you don't have to cash them in at 20.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by absolute zero »

ivgrivchuck wrote: Sun Nov 14, 2021 11:05 am A very interesting trick. I wasn't aware of this. I'm considering using this.
I’m interested in this too, but it’s not clear to me
1) whether interest is earned immediately upon purchase vs not until the gift is delivered and
2) whether the 1 year minimum holding period begins when the bond is purchased vs when the gift is delivered
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by oneleaf »

absolute zero wrote: Tue Nov 16, 2021 8:58 am
ivgrivchuck wrote: Sun Nov 14, 2021 11:05 am A very interesting trick. I wasn't aware of this. I'm considering using this.
I’m interested in this too, but it’s not clear to me
1) whether interest is earned immediately upon purchase vs not until the gift is delivered and
2) whether the 1 year minimum holding period begins when the bond is purchased vs when the gift is delivered
I don't know the exact details about the holding period (item 2)... But regarding the interest (item 1), I know you can hold the bonds until they mature (with all interest and proceeds) and then deliver it... so presumably they start earning interest right away. I couldn't find any more definitive info on the website though.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by HueyLD »

Per 31 CFR § 363.96

“What do I need to know if I initially purchase a bond as a gift?

(a) An entity may not purchase a gift savings bond.

(b) The gift bond will be registered in the name of the recipient(s). The registration is irrevocable with regard to the owner named on the gift bond.

(c) You must provide the SSN of the recipient.

(d) You may deliver the bond upon purchase, or you may hold the bond in your TreasuryDirect ® account until you are ready to deliver the bond to the owner named on the gift bond.

(e) If the purchaser dies before delivering a gift bond to the recipient, the bond belongs to the owner named on the gift bond, notwithstanding any testamentary attempts to the contrary by the purchaser, or any state law to the contrary. We will hold the bond until we receive instructions from the owner named on the gift bond.”
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by ObiQuiet »

This is an easier technique than using the entity account scheme, but two things to be aware of that I noted:

1. You can't register the bonds in two names, as often done to simplify survivorship. Maybe it's possible to change the registration after delivery of the gift, but the bold text in the post above maybe indicates that's not so...

2. Instead of the one-year lock out, the funds can't be redeemed until a year in which the recipient buys or receives less than their max in other I bonds. This could matter to some, if one gets in the habit of serial purchases (perhaps early in the year).

Still works for "front-loading", though.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by Index4Life »

What happens if in a single year, you already purchased I-bonds up to your limit ($10,000), and someone else delivers to you a gift of I-bonds (I.e. $10,000) on top of that?
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by DVA79 »

I did this—no problem. We plan to deliver the gifts to each other on Jan 1 and then buy another 10k in each account at the end of Jan. The language is straight forward. This process merely frontloads bonds and is still within the 10k annual limit.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by Index4Life »

DVA79 wrote: Tue Nov 23, 2021 10:02 am I did this—no problem. We plan to deliver the gifts to each other on Jan 1 and then buy another 10k in each account at the end of Jan. The language is straight forward. This process merely frontloads bonds and is still within the 10k annual limit.
Doesn't this result in exceeding the $10,000 individual limit? Receipt of 10k gift in 2022 + purchase of 10k in 2022 = $20,000.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by BrokerageZelda »

Index4Life wrote: Tue Nov 23, 2021 12:35 pm
DVA79 wrote: Tue Nov 23, 2021 10:02 am I did this—no problem. We plan to deliver the gifts to each other on Jan 1 and then buy another 10k in each account at the end of Jan. The language is straight forward. This process merely frontloads bonds and is still within the 10k annual limit.
Doesn't this result in exceeding the $10,000 individual limit? Receipt of 10k gift in 2022 + purchase of 10k in 2022 = $20,000.
This will exceed the limit, because the rules specify that a gift counts against the recipient's purchase limit in the year it is delivered.

You haven't exceeded the limit yet (because the extra 10k hasn't been delivered), but if you deliver the $10k on the first business day in January (watch out for holidays) and then try to buy another $10k in the same year, that's when TD will flag you.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by DVA79 »

BrokerageZelda wrote: Tue Nov 23, 2021 12:47 pm
Index4Life wrote: Tue Nov 23, 2021 12:35 pm
DVA79 wrote: Tue Nov 23, 2021 10:02 am I did this—no problem. We plan to deliver the gifts to each other on Jan 1 and then buy another 10k in each account at the end of Jan. The language is straight forward. This process merely frontloads bonds and is still within the 10k annual limit.
Doesn't this result in exceeding the $10,000 individual limit? Receipt of 10k gift in 2022 + purchase of 10k in 2022 = $20,000.
This will exceed the limit, because the rules specify that a gift counts against the recipient's purchase limit in the year it is delivered.

You haven't exceeded the limit yet (because the extra 10k hasn't been delivered), but if you deliver the $10k on the first business day in January (watch out for holidays) and then try to buy another $10k in the same year, that's when TD will flag you.
Sorry let me clarify— I meant to say buy another gift in 2022 to hold until 2023 at which point I will transfer it. I will deliver the gift I purchased this year in Jan ‘22.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by ivgrivchuck »

I'm trying this out now...

- My spouse and I bought $10k gifts to each other to be delivered in Jan 22.
- I also bought $10k gift for each of our children to be delivered in Jan 22.

So far so good.

- I'll probably go for one more spousal gift round targeting Jan 23.

Then in Jan 22, it's time to re-evaluate the next steps...
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by fujiters »

ivgrivchuck wrote: Tue Nov 23, 2021 9:50 pm I'm trying this out now...

- My spouse and I bought $10k gifts to each other to be delivered in Jan 22.
- I also bought $10k gift for each of our children to be delivered in Jan 22.

So far so good.

- I'll probably go for one more spousal gift round targeting Jan 23.

Then in Jan 22, it's time to re-evaluate the next steps...
I'm failing to see the great benefit in the Jan 22 gifts. You can just buy in Jan 22 and get the same rate. The only win I see is starting the savings bond 2 months early. Am I missing something?
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by ivgrivchuck »

fujiters wrote: Tue Nov 23, 2021 10:10 pm I'm failing to see the great benefit in the Jan 22 gifts. You can just buy in Jan 22 and get the same rate. The only win I see is starting the savings bond 2 months early. Am I missing something?
That's the only benefit, you are correct.

The main motivation for me is to test the system. If this works as intended, I intend to front-load for '23 and '24 while the rates are still high...
Last edited by ivgrivchuck on Tue Nov 23, 2021 11:17 pm, edited 1 time in total.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by SnowBog »

fujiters wrote: Tue Nov 23, 2021 10:10 pm
ivgrivchuck wrote: Tue Nov 23, 2021 9:50 pm I'm trying this out now...

- My spouse and I bought $10k gifts to each other to be delivered in Jan 22.
- I also bought $10k gift for each of our children to be delivered in Jan 22.

So far so good.

- I'll probably go for one more spousal gift round targeting Jan 23.

Then in Jan 22, it's time to re-evaluate the next steps...
I'm failing to see the great benefit in the Jan 22 gifts. You can just buy in Jan 22 and get the same rate. The only win I see is starting the savings bond 2 months early. Am I missing something?
My read is they are basically buying 1+ years ahead...

So when you/I buy in 2022 - it's our purchase for 2022.

Their 2022 bonds were purchased in 2021 (or earlier), and were delivered in 2022. And any they purchase in 2022 will be "delivered" in a future year.

I can see 3 main reasons for this:
  • You want to "load up" on more than $10k/year at "high" rates, which you'll hold and deliver in the future (in a year you don't buy). This might be particularly interesting if/when we have fixed > 0% again.
  • You have excess money to invest in I Bonds, and want to start getting interest ASAP vs. buying over several years.
  • You want to "pre-fund" several years of Bonds. For example, I had planned to stop buying I/EE Bonds at my "planned" retirement date (while I still have a paycheck). But if we retire even earlier, we could buy the next several years worth in advance.
The obvious downside I see is locking up money even longer than the 1 year. For example, if you buy 5 years of gifts in advance, since you can still only deliver 1 year at a time (and only if that person didn't buy them that year), it will take years to "deliver" the gifts - which is needed before they can be sold.

You'll also need a partner to do the gift exchange with... And presumably that impacts your annual gifting limits...
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by fujiters »

SnowBog wrote: Tue Nov 23, 2021 10:43 pm
fujiters wrote: Tue Nov 23, 2021 10:10 pm
ivgrivchuck wrote: Tue Nov 23, 2021 9:50 pm I'm trying this out now...

- My spouse and I bought $10k gifts to each other to be delivered in Jan 22.
- I also bought $10k gift for each of our children to be delivered in Jan 22.

So far so good.

- I'll probably go for one more spousal gift round targeting Jan 23.

Then in Jan 22, it's time to re-evaluate the next steps...
I'm failing to see the great benefit in the Jan 22 gifts. You can just buy in Jan 22 and get the same rate. The only win I see is starting the savings bond 2 months early. Am I missing something?
My read is they are basically buying 1+ years ahead...

So when you/I buy in 2022 - it's our purchase for 2022.

Their 2022 bonds were purchased in 2021 (or earlier), and were delivered in 2022. And any they purchase in 2022 will be "delivered" in a future year.

I can see 3 main reasons for this:
  • You want to "load up" on more than $10k/year at "high" rates, which you'll hold and deliver in the future (in a year you don't buy). This might be particularly interesting if/when we have fixed > 0% again.
  • You have excess money to invest in I Bonds, and want to start getting interest ASAP vs. buying over several years.
  • You want to "pre-fund" several years of Bonds. For example, I had planned to stop buying I/EE Bonds at my "planned" retirement date (while I still have a paycheck). But if we retire even earlier, we could buy the next several years worth in advance.
The obvious downside I see is locking up money even longer than the 1 year. For example, if you buy 5 years of gifts in advance, since you can still only deliver 1 year at a time (and only if that person didn't buy them that year), it will take years to "deliver" the gifts - which is needed before they can be sold.

You'll also need a partner to do the gift exchange with... And presumably that impacts your annual gifting limits...
Yes, I see the benefit in doing it for many months out. It was the planning to deliver the gifted bonds after 2 months (and at a time one could still obtain the same rate as was available during the initial purchase) that threw me. It sounds like it's more a test run to make sure the delayed delivery plan will work as expected. I'm considering buying gifts in Jan 22 to stock up for future years; it didn't occur to me to essentially make the Jan 2022 purchase now via gifting though.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by Dioremius »

As the bond sits in the gift box, its value increases. Does the $10k bond apply to the bond's face value, or to its value at the time when it's transferred to the recipient?

(I would guess it's face value, merely because that's simpler for Treasury to implement... But I don't see anything saying that.)

Anyway, keeping savings bonds (frontloaded or otherwise) in the TreasuryDirect gift box looks like a very interesting techniques for making bond gifts to one's children. By keeping control on when to transfer them (up to 30 years), you mitigate some bad scenarios involving money airdrops and bad life choices. You can also get the 20-years clock ticking on EE bonds so that they double just when the kid really needs a little push up the hill (starter home etc.), without dangling the temptation of premature cash-out.

Any idea what's the gift tax treatment? Does the bond count against the gift tax exclusion in the year when the savings bond are purchased and put in the gift box (because "the registration is irrevocable"), or in the year when the bond is transferred to the recipient's account (because until then the purchaser still has some control over it)?
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by bogleyboo »

SnowBog wrote: Tue Nov 23, 2021 10:43 pm You'll also need a partner to do the gift exchange with... And presumably that impacts your annual gifting limits...
Anyone know if an entity account (eg: living trust) qualifies for receiving a gift? I've read that you can't send a gift from an entity account, but can you send a gift to an entity account? Has anyone tried it?
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by BabaWawa »

bogleyboo wrote: Wed Nov 24, 2021 7:38 pm
SnowBog wrote: Tue Nov 23, 2021 10:43 pm You'll also need a partner to do the gift exchange with... And presumably that impacts your annual gifting limits...
Anyone know if an entity account (eg: living trust) qualifies for receiving a gift? I've read that you can't send a gift from an entity account, but can you send a gift to an entity account? Has anyone tried it?
I just tried to fill out a registrant for a gift and doesn't look like you will be able to list an entity such as a trust. It specifically asks for first middle and last name, no place for trust names.
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by BrokerageZelda »

bogleyboo wrote: Wed Nov 24, 2021 7:38 pm
SnowBog wrote: Tue Nov 23, 2021 10:43 pm You'll also need a partner to do the gift exchange with... And presumably that impacts your annual gifting limits...
Anyone know if an entity account (eg: living trust) qualifies for receiving a gift? I've read that you can't send a gift from an entity account, but can you send a gift to an entity account? Has anyone tried it?
It is not allowed.

https://www.treasurydirect.gov/indiv/he ... rnmore.htm
An entity is not permitted to:
  • Have more than one registration per account
  • Open a minor linked account
  • Purchase securities as gifts for others or receive gift securities
  • Name a secondary owner or beneficiary in its registration
  • Grant View or Transact rights
  • Fund the account using the Payroll Savings Plan
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by Dioremius »

Answering my question above:
Dioremius wrote: Wed Nov 24, 2021 7:36 pm As the bond sits in the gift box, its value increases. Does the $10k bond apply to the bond's face value, or to its value at the time when it's transferred to the recipient?
The $10k limit applies to the principal of the savings bonds. Reference: 31 CFR § 363.52 (https://www.law.cornell.edu/cfr/text/31/363.52).

So it seems you can buy a $10k savings bond as gift, let it sit in the "gift box" and accrue interest for several years (or even reach EE doubling), and then transfer it to the pre-designated recipient. This stays within the $10k-of-principal limit (assuming that the limit or rules aren't meanwhile changed).


Still can't find an answer to my other question, about gift tax treatment.
loukycpa
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by loukycpa »

When you are purchasing can you go ahead and purchase $100k (or whatever amount you want in excess of $10k) in bulk whole amount, but then when you deliver you are doing a "partial transfer" limited to 10k per year? Or buy in 10k chunks to be delivered in 10k chunks?

If this actually works, I am considering doing this for my spouse and I. Trying to understand the potential downsides before I jump. Seems to me they are the fact that each of us can only access 10k a year going forward. Also while zero percent real looks good in the current environment, if in the future other fixed income opportunities out there (total bond, TIPs, money markets, stable value funds, etc.) offer a real return in excess of inflation I will be shut out with respect to this money I have in my gift box, earning only 0% real return.

Probably similar investment to buying TIPs. Better expected return than holding TIPs to maturity (TIPS are currently auctioned at negative rates) but less liquidity (TIPS are marketable securities, I bonds aren't).

So what am I doing if I do this? Seems I am pushing our purchasing power into the future, protecting it against inflation. 0% real return, but principal is 100% safe. But then we can only potentially access it back $20k a year as a couple (which can continued to be deferred if we want to push it forward). So don't lock up more than you are content to access back 20k a year.

Am I framing this wrong?
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HueyLD
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by HueyLD »

Keep in mind that the gifting decision is irrevocable, meaning that the money is no longer yours once you send it to the gift bucket.

A divorce can be a problem.
loukycpa
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by loukycpa »

HueyLD wrote: Thu Dec 09, 2021 7:51 am Keep in mind that the gifting decision is irrevocable, meaning that the money is no longer yours once you send it to the gift bucket.

A divorce can be a problem.
Seems like that cuts both ways though right? Presuming you are both gifting at same time and amount.

Personally I have no plans. I can’t be sure about her but I know she thinks my index funds are sexy.
loukycpa
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by loukycpa »

Found this FAQ on Treasury Direct website:

https://www.treasurydirect.gov/indiv/he ... GiftGiving

Gift Giving
Can I purchase an EE or I Bond for a friend or family member as a gift?
Yes. If you purchase an EE or I Bond as a gift, the recipient's Social Security Number must be provided. Gift securities are not available in entity accounts.

May I purchase a marketable security with a gift registration?
No. You may not purchase a marketable security with a gift registration.

When can I deliver a gift savings bond to the recipient's account?
You must wait five business days after the purchase date to deliver a gift savings bond.

How long can I hold a gift before delivery?
You may hold an EE and I Bond that is registered as a gift until it reaches maturity.

What happens when a gift security matures before being delivered?
If the gift bond has not been delivered to the recipient prior to maturity, the redemption amount will be held as Gift Box Proceeds in your Gift Box until delivered.

If I deliver gifts to another TreasuryDirect customer, how does it affect the recipient's purchase limitation?
If you deliver gifts to another customer, the amount of the delivery is applied toward the annual purchase limitation for each security type for the year the gift delivery occurs.

May I deliver gifts to a minor's TreasuryDirect account?
You may deliver a bond purchased as a gift to a Minor account that has been established within a Primary TreasuryDirect account.

Gift securities are not available in entity accounts.
WS1
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by WS1 »

Do the 12 month lock-up and 5yr interest penalty start at purchase or delivery?

I use I bonds as part of my “cash” bucket.
hoops777
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by hoops777 »

I have been reading this and have seen no one mention that buying extra gifts now is great because of the 7 % rate right now.
So if I bought 100,000 in gift IBonds today, in total they would earn 3500 dollars the next 6 months, correct?
I am guessing the inflation rate in May will probably still be up there so the the first year return would be excellent.
Am I missing anything?
K.I.S.S........so easy to say so difficult to do.
nydoc
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by nydoc »

If you need that money for something I guess you can’t redeem it yourself as it was designated as a gift to someone else. Recipient can only receive 10k a year and then have to wait additional year to redeem it. Your 100k may be stuck in TD account for a long time.
nydoc
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by nydoc »

I consider most recent year I bond purchase as bond and rest as cash reason being not able to redeem for the first year.
hoops777
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by hoops777 »

nydoc wrote: Sat Dec 11, 2021 3:00 pm If you need that money for something I guess you can’t redeem it yourself as it was designated as a gift to someone else. Recipient can only receive 10k a year and then have to wait additional year to redeem it. Your 100k may be stuck in TD account for a long time.
I understand. I would actually be gifting my wife 50,000 and my wife would be gifting me 50,000. So the money would be tied up for not that long of time and it is money that we don’t need anytime soon anyway.
My main point was that nobody seems to be mentioning the 7% return being a great time talk to do this right now so I was concerned that maybe you don’t get the 7% return for the full amount for six months?
K.I.S.S........so easy to say so difficult to do.
nydoc
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by nydoc »

7% rate is valid for the next 5 months. Then it will reset to a lower rate. Base rate may rise in future years and inflation may also be around 3-4% so combined rate will not be that much different from current rates. Therefore buying so much I bonds upfront may not be such a lucrative idea.
ivgrivchuck
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by ivgrivchuck »

nydoc wrote: Sat Dec 11, 2021 3:16 pm 7% rate is valid for the next 5 months. Then it will reset to a lower rate. Base rate may rise in future years and inflation may also be around 3-4% so combined rate will not be that much different from current rates.
More accurately:

If you buy I-bonds during the next 4.5 months, you'll get the 7% rate for the first six months that you hold the bonds. After that the rate will be set to a new rate.
Therefore buying so much I bonds upfront may not be such a lucrative idea.
Well, the 5-year breakeven inflation rate is currently around 2.8%. That is the expected average inflation for the next 5 years and hence roughly the average expected nominal return for i-bonds. That easily beats any 5-year CD ladder or bond fund expected return (excluding junk).

The only problem I can see is that the money is locked. You can't break the i-bond ladder once you've built one.
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
hoops777
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by hoops777 »

nydoc wrote: Sat Dec 11, 2021 3:16 pm 7% rate is valid for the next 5 months. Then it will reset to a lower rate. Base rate may rise in future years and inflation may also be around 3-4% so combined rate will not be that much different from current rates. Therefore buying so much I bonds upfront may not be such a lucrative idea.
If you buy the 7% IBonds anytime within their 6 month period you still get that rate for 6 months.I f I buy in March I will still get the 7% for 6 months.
My point was if you had bought a year ago the rate was what,1.7 or something.
K.I.S.S........so easy to say so difficult to do.
ObiQuiet
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by ObiQuiet »

nydoc wrote: Sat Dec 11, 2021 3:00 pm If you need that money for something I guess you can’t redeem it yourself as it was designated as a gift to someone else. Recipient can only receive 10k a year and then have to wait additional year to redeem it. Your 100k may be stuck in TD account for a long time.
I don't think that's true, is it?
ivgrivchuck
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by ivgrivchuck »

ObiQuiet wrote: Sat Dec 11, 2021 3:43 pm
nydoc wrote: Sat Dec 11, 2021 3:00 pm If you need that money for something I guess you can’t redeem it yourself as it was designated as a gift to someone else. Recipient can only receive 10k a year and then have to wait additional year to redeem it. Your 100k may be stuck in TD account for a long time.
I don't think that's true, is it?
I don't expect it to be true, but it seems that nobody in the board knows for sure...
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
SnowBog
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by SnowBog »

ivgrivchuck wrote: Sat Dec 11, 2021 3:50 pm
ObiQuiet wrote: Sat Dec 11, 2021 3:43 pm
nydoc wrote: Sat Dec 11, 2021 3:00 pm If you need that money for something I guess you can’t redeem it yourself as it was designated as a gift to someone else. Recipient can only receive 10k a year and then have to wait additional year to redeem it. Your 100k may be stuck in TD account for a long time.
I don't think that's true, is it?
I don't expect it to be true, but it seems that nobody in the board knows for sure...
A person can either buy for themselves or have a gift "delivered" of at most $10k per year. So if today you bought $50k as gifts for each spouse, and assuming that they also bought $10k individually. You could "deliver" the first of the $10k in 2022, the next $10k in 2023, etc., with the last of the original $50k delivered in 2026.

As to what could go wrong with the plan, all that's known right now is the 7% for the first 6 months. While unlikely, the remaining nine 6-month periods could all be 0%, but you've locked up money for 5 years and are stuck with it. So for those who are only interested in I Bonds due to the 7% rate, they may end up very disappointed.

Some recognize I Bonds for what they are, essentially a preservation of capital. I Bonds aren't really earning anything, even at 7%, instead they are keeping up with inflation (minus taxes eventually). Granted this is much better than you can get in a bank, but you aren't going to "make money" on I Bonds. For these people, they were probably buying I Bonds years ago, and we'll be buying I Bonds years from now when the interest rate is [hopefully] no longer an eye popping 7.12%. So for them to front load purchases, they aren't really concerned about future rates - as they already know it will be whatever inflation is - and that's fine for them.
WS1
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Re: An Easy Way to Frontload (temporarily exceed) I/EE Bond Annual Limit?

Post by WS1 »

SnowBog wrote: Sat Dec 11, 2021 5:09 pm
ivgrivchuck wrote: Sat Dec 11, 2021 3:50 pm
ObiQuiet wrote: Sat Dec 11, 2021 3:43 pm
nydoc wrote: Sat Dec 11, 2021 3:00 pm If you need that money for something I guess you can’t redeem it yourself as it was designated as a gift to someone else. Recipient can only receive 10k a year and then have to wait additional year to redeem it. Your 100k may be stuck in TD account for a long time.
I don't think that's true, is it?
I don't expect it to be true, but it seems that nobody in the board knows for sure...
A person can either buy for themselves or have a gift "delivered" of at most $10k per year. So if today you bought $50k as gifts for each spouse, and assuming that they also bought $10k individually. You could "deliver" the first of the $10k in 2022, the next $10k in 2023, etc., with the last of the original $50k delivered in 2026.

As to what could go wrong with the plan, all that's known right now is the 7% for the first 6 months. While unlikely, the remaining nine 6-month periods could all be 0%, but you've locked up money for 5 years and are stuck with it. So for those who are only interested in I Bonds due to the 7% rate, they may end up very disappointed.

Some recognize I Bonds for what they are, essentially a preservation of capital. I Bonds aren't really earning anything, even at 7%, instead they are keeping up with inflation (minus taxes eventually). Granted this is much better than you can get in a bank, but you aren't going to "make money" on I Bonds. For these people, they were probably buying I Bonds years ago, and we'll be buying I Bonds years from now when the interest rate is [hopefully] no longer an eye popping 7.12%. So for them to front load purchases, they aren't really concerned about future rates - as they already know it will be whatever inflation is - and that's fine for them.

A 6 month stretch of 0% is the perfect time to redeem an I bond prior to the 5yr point.
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