Buying I Bonds for Children

[relentless]

I have kids a similar age and loaded up on I bonds in Dec and January. These have performed so much better than the stock market. We are limited by ibond purchases but it doesn't mean you can't add onto 529 accounts for equities now that we have dropped 20%. Over time this will smooth out the asset allocation.

Despite the name, think of ibonds as very high yielding cash. Inflation is here, but also somewhat backward looking. You get paid for inflation that happens vs what inflation will be, so it makes sense to keep holding I bonds for the near term.

It makes sense to switch to equities for the child at some point. You can always put the cash in a brokerage account for the child.. Withdrawl funds for a trip to Disney, Summer camps, ski vacations, and then add more funds in a 529.

Agree with this-and pretty much was my plan, especially with private school tuition also in the mix. (Let's not derail this thread, please). That also would let us get (delayed) 529 state tax deduction. Our actual marginal tax on interest is actually about 40%, but I Bonds are state tax exempt. Losing this tax deduction was my other concern about using I Bonds. Will just need to be careful not to go over the 15k gift tax exemptino between further I Bond purchased and 529s. Should be able to navigate by coordinating gifts with my wife.

Yes-Ibonds have some of the best features of both cash and bonds, similar (in some respects) to the TSP's G fund.

[DiMAn0684]

Is buying iBonds in minor's account, selling them after some time, and moving money into 529 that's open for that minor a reasonable plan? The intent is to give money to the minor, but I also recognize that 529 is technically 'mine'.

[dbr]

Is buying iBonds in minor's account, selling them after some time, and moving money into 529 that's open for that minor a reasonable plan? The intent is to give money to the minor, but I also recognize that 529 is technically 'mine'.

I suppose technically the only strictly legal answer is that a person is caught out ignoring who really owns things only when one of the parties to it sees what is going on, does not like it, and sues. That seems like a remote possibility, but you never know. There are cases of children become adults who sue over UTMA issues. What if the child never goes on with an educational program of any kind and you just take back the money?

Another remote possibility is that if the minor legitimately gifts the money back to you there might be some tax issue, but I don't know what it is.

[evelynmanley]

Buy I Bonds in Your Children’s Names: You Can, But Should You?
by Harry Sit

https://thefinancebuff.com/buy-i-bonds-kids-name.html



Cash Out I Bonds Tax Free For College Expenses Or 529 Plan
by Harry Sit

https://thefinancebuff.com/cash-out-i-b ... -plan.html

[pmorgan2020]

Sorry if this is a dumb question about buying iBonds for family..Few weeks back I created a TD account and purchased 10k worth of iBonds in my name and planning to buy one in my Spouse’s name and another one in my kid’s name, do I need to create a separate TD account one for my wife and another for kid? Of I can buy in the same account I created for myself.

[SnowBog]

Sorry if this is a dumb question about buying iBonds for family..Few weeks back I created a TD account and purchased 10k worth of iBonds in my name and planning to buy one in my Spouse’s name and another one in my kid’s name, do I need to create a separate TD account one for my wife and another for kid? Of I can buy in the same account I created for myself.

Ultimately, yes to spouse - they'll need their own account to eventually "redeem" them someday. But you can buy them in your account as a "gift" (aka you buy them in your account but registered to spouse, they'll need their own account to "receive" them in the future).

Kid's cannot have an account, instead you'll need to create a "minor linked account" within either your or spouse's account. When they turn 18, the account will become a regular account (aka have its own login).

But recommend reading the link posted previously on "should you" buy them for kids... There are downsides to doing so.

[pmorgan2020]

Makes lot of sense now, thank you!
Looks like it probably makes more sense gift one each other to make the total to 40k to get the optimal interest rate at least for the next six months

[ivgrivchuck]

Is buying iBonds in minor's account, selling them after some time, and moving money into 529 that's open for that minor a reasonable plan? The intent is to give money to the minor, but I also recognize that 529 is technically 'mine'.

You can't legally do that. After you gift money to a child, it's theirs, you can't move it back to an account that's owned by you (except perhaps temporarily to facilitate a transfer). You could however move money from I-bonds into a custodial 529 account (which is owned by the child).

[kanjoos]

We have kid 10 and 8 and have 529 of both already and in vtsax.

10yr old play select Basketball and with fees and training can be easily $3k/yr
My youngest one will play select soccer with a yr and his fees will likely be the same.

Can I put money in ibonds for such activities that I know kids will use after 12 months? Also, I am sure there will be extra cost of summer camps.

[ivgrivchuck]

We have kid 10 and 8 and have 529 of both already and in vtsax.

10yr old play select Basketball and with fees and training can be easily $3k/yr
My youngest one will play select soccer with a yr and his fees will likely be the same.

Can I put money in ibonds for such activities that I know kids will use after 12 months? Also, I am sure there will be extra cost of summer camps.

You need to use the money for the benefit of a child. For me it sounds like that you are going to do just that, but I'm not a legal expert.

[evelynmanley]

We have kid 10 and 8 and have 529 of both already and in vtsax.

10yr old play select Basketball and with fees and training can be easily $3k/yr
My youngest one will play select soccer with a yr and his fees will likely be the same.

Can I put money in ibonds for such activities that I know kids will use after 12 months? Also, I am sure there will be extra cost of summer camps.

https://thefinancebuff.com/buy-i-bonds-as-gift.html

<<After you deliver the gift bonds, it’s the recipient’s money, and they can do whatever they want with the bonds.

Buying I Bonds as a gift works when you want a family member to have some I Bonds but they don’t have spare cash. It works the same as giving them money and letting them buy themselves.<<

[Bama12]

I have been buying VTI for my son.

[Big Dog]

Johnny:

why not buy a stock in a dividend-paying kid-friendly company to learn about investments.? Back in the dark ages, 1 share of disney got you the annual report, which were always entertaining for the kids. bonds are about as much fun as watching grass grow.

fwiw: I can't for the life of me understand why a toddler needs bonds, inflation protected, or regular.

[itispossible]

If I liquidate the child's ibond and transfer the funds to her bank account, and say the interest on the ibond is $1,100, do I have to report this on my tax return? Will this mean that I don't get the standard deduction for child on my taxes?

Second related question, if I want to invest the child's funds in the stock market, do I have to open an UTMA account? I had not heard of this before. Checking on Vanguard -- seems to suggest that there is also an UGMA account. What is a good option to consider for child to invest in S&P 500 ETF.

Thanks.

[dbr]

If I liquidate the child's ibond and transfer the funds to her bank account, and say the interest on the ibond is $1,100, do I have to report this on my tax return? Will this mean that I don't get the standard deduction for child on my taxes?

Second related question, if I want to invest the child's funds in the stock market, do I have to open an UTMA account? I had not heard of this before. Checking on Vanguard -- seems to suggest that there is also an UGMA account. What is a good option to consider for child to invest in S&P 500 ETF.

Thanks.

The Fidelity Youth Account may interest you: https://www.fidelity.com/go/youth-accou ... lsrc=3p.ds&

You will want to study the account terms and conditions carefully. According to Fidelity:

Is the Fidelity Youth Account a joint account or custodial account?
No, the Youth Account is a teen-owned brokerage account. It is owned by the minor, who makes all the investment decisions. This is unlike a custodial account (e.g., Uniform Gifts to Minors Act [UGMA] account or a Uniform Transfers to Minors Act [UTMA] account) where the custodian makes the investment decisions on the minor's behalf.

[itispossible]

If I liquidate the child's ibond and transfer the funds to her bank account, and say the interest on the ibond is $1,100, do I have to report this on my tax return? Will this mean that I don't get the standard deduction for child on my taxes?

Second related question, if I want to invest the child's funds in the stock market, do I have to open an UTMA account? I had not heard of this before. Checking on Vanguard -- seems to suggest that there is also an UGMA account. What is a good option to consider for child to invest in S&P 500 ETF.

Thanks.

The Fidelity Youth Account may interest you: https://www.fidelity.com/go/youth-accou ... lsrc=3p.ds&

You will want to study the account terms and conditions carefully. According to Fidelity:

Is the Fidelity Youth Account a joint account or custodial account?
No, the Youth Account is a teen-owned brokerage account. It is owned by the minor, who makes all the investment decisions. This is unlike a custodial account (e.g., Uniform Gifts to Minors Act [UGMA] account or a Uniform Transfers to Minors Act [UTMA] account) where the custodian makes the investment decisions on the minor's behalf.

Thanks dbr. Think she may not qualify -- not a teen yet.

[SnowBog]

If I liquidate the child's ibond and transfer the funds to her bank account, and say the interest on the ibond is $1,100, do I have to report this on my tax return? Will this mean that I don't get the standard deduction for child on my taxes?

Second related question, if I want to invest the child's funds in the stock market, do I have to open an UTMA account? I had not heard of this before. Checking on Vanguard -- seems to suggest that there is also an UGMA account. What is a good option to consider for child to invest in S&P 500 ETF.

Thanks.

The Fidelity Youth Account may interest you: https://www.fidelity.com/go/youth-accou ... lsrc=3p.ds&

You will want to study the account terms and conditions carefully. According to Fidelity:

Is the Fidelity Youth Account a joint account or custodial account?
No, the Youth Account is a teen-owned brokerage account. It is owned by the minor, who makes all the investment decisions. This is unlike a custodial account (e.g., Uniform Gifts to Minors Act [UGMA] account or a Uniform Transfers to Minors Act [UTMA] account) where the custodian makes the investment decisions on the minor's behalf.

Thanks dbr. Think she may not qualify -- not a teen yet.

Then a UTMA might be more applicable. The account is clearly "owned" by the minor child. But you are the custodian, meaning you can decide where/when/how to invest those funds.

You can decide to transfer those funds to other accounts, like the youth account, or even a custodial 529, at s later date. When the child reaches the age of majority (which differs by state, and in a few cases may differ by his you titled the account), they will fully control the account.

Much like the I Bonds for the child, you need to remain mindful this is not "your" money, and should only be spent on things that are good for the child. Arguably on things that aren't your parental responsibility; for example you need to buy them food and clothes and provide them shelter. But that band trip they want to take, or that new piece of sports equipment they want, those are not parental obligations.

On the taxing side, you'll want to look at how to file taxes for minor children, as well as understand the so called "kiddie tax" rules. I don't remember the specifics, but generally speaking if the income is below a certain threshold you can "include" it with your return or optionally file the child's taxes separately. In my experience, the latter is the better option, especially since the amount is below the "kiddie tax" threshold, as the child should owe $0 federally (just the effort for you to file). Obviously, you'll need to deal with state taxes if applicable as well.

[itispossible]

If I liquidate the child's ibond and transfer the funds to her bank account, and say the interest on the ibond is $1,100, do I have to report this on my tax return? Will this mean that I don't get the standard deduction for child on my taxes?

Second related question, if I want to invest the child's funds in the stock market, do I have to open an UTMA account? I had not heard of this before. Checking on Vanguard -- seems to suggest that there is also an UGMA account. What is a good option to consider for child to invest in S&P 500 ETF.

Thanks.

The Fidelity Youth Account may interest you: https://www.fidelity.com/go/youth-accou ... lsrc=3p.ds&

You will want to study the account terms and conditions carefully. According to Fidelity:

Is the Fidelity Youth Account a joint account or custodial account?
No, the Youth Account is a teen-owned brokerage account. It is owned by the minor, who makes all the investment decisions. This is unlike a custodial account (e.g., Uniform Gifts to Minors Act [UGMA] account or a Uniform Transfers to Minors Act [UTMA] account) where the custodian makes the investment decisions on the minor's behalf.

Thanks dbr. Think she may not qualify -- not a teen yet.

Then a UTMA might be more applicable. The account is clearly "owned" by the minor child. But you are the custodian, meaning you can decide where/when/how to invest those funds.

You can decide to transfer those funds to other accounts, like the youth account, or even a custodial 529, at s later date. When the child reaches the age of majority (which differs by state, and in a few cases may differ by his you titled the account), they will fully control the account.

Much like the I Bonds for the child, you need to remain mindful this is not "your" money, and should only be spent on things that are good for the child. Arguably on things that aren't your parental responsibility; for example you need to buy them food and clothes and provide them shelter. But that band trip they want to take, or that new piece of sports equipment they want, those are not parental obligations.

On the taxing side, you'll want to look at how to file taxes for minor children, as well as understand the so called "kiddie tax" rules. I don't remember the specifics, but generally speaking if the income is below a certain threshold you can "include" it with your return or optionally file the child's taxes separately. In my experience, the latter is the better option, especially since the amount is below the "kiddie tax" threshold, as the child should owe $0 federally (just the effort for you to file). Obviously, you'll need to deal with state taxes if applicable as well.

Thanks SnowBog. Will look into UTMA.