Although the current 2.2 percent interest rate on Series I savings bonds is appealing, purchasing the bonds has grown more difficult. Paper Series I and EE savings bonds—those handy envelope stuffer gifts—can no longer be purchased in banks or credit unions; instead, you must purchase electronic bonds through TreasuryDirect, the Treasury Department’s Web-based system. Our correspondent discovered the procedure of purchasing a savings bond for her little nephew to be cumbersome. Here’s some assistance:
What is the procedure for purchasing an I Bond?
When it comes to tax considerations, I bonds have the upper hand over CDs. State and local income taxes do not apply to I bond interest, and you can elect to postpone federal income taxes on your earnings until you cash the bonds in. (On the other hand, CD bank interest is taxed annually as it accrues, even if you reinvest it all.) Another tax benefit that parents and grandparents may be interested in is that if you cash in an I bond to pay for higher education, the interest may not be federally taxable at all. However, to qualify for this income exclusion, your modified adjusted gross income must be below a particular threshold—in 2021, the threshold will be $83,200 for singles and $124,800 for couples. This figure is updated for inflation every year.
Set up an account with TreasuryDirect and link it to your bank or money market account to purchase I bonds. You can also purchase I bonds by enrolling in the Treasury’s payroll savings program, which allows you to set up recurring purchases of electronic savings bonds with funds deducted directly from your salary.
Is buying paper I bonds the only option these days? Request that your tax refund be utilized to buy them. If you file your 2021 tax return by early April and are due a refund, consider investing it in I bonds to lock in that 7.12 percent interest rate for six months. (In addition to the $10,000 you can buy online through TreasuryDirect, you can buy up to $5,000 in I bonds with your refund.)
How do I get my grandchildren to buy savings bonds?
- Go to www.treasurydirect.gov for further information.
- Purchase the savings bond you choose (Series EE or Series I) in the denomination you want ($25 to $10,000).
Is it wise to invest in I bonds in 2021?
- I bonds are a smart cash investment since they are guaranteed and provide inflation-adjusted interest that is tax-deferred. After a year, they are also liquid.
- You can purchase up to $15,000 in I bonds per calendar year, in both electronic and paper form.
- I bonds earn interest and can be cashed in during retirement to ensure that you have secure, guaranteed investments.
- The term “interest” refers to a mix of a fixed rate and the rate of inflation. The interest rate for I bonds purchased between November 2021 and April 2022 was 7.12 percent.
Is it still possible to purchase 2021 bonds?
Unless you cash them first, I Bonds pay interest for 30 years. Given the predicted pace of inflation, buying as many I Bonds as allowed in 2021 could help savers earn a respectable interest for at least a year.
Should I invest in 2022 bonds?
The TreasuryDirect website is a good place to start if you’re interested in I bonds. This article explains how to acquire I bonds, including the $10,000 yearly limit per person, how rates are computed, and how to get started by creating an online account with the US Treasury.
I bonds aren’t a good substitute for stocks. I bonds, on the other hand, are an excellent place to start in 2022 for most investors who require an income investment to balance their stock market risk. Consider I bonds as a go-to investment for the new year, whether you have $25, $10,000, or something in between. But don’t wait too long, because after April, the 7.12 percent rate will be gone.
What is the cost of a $100 savings bond?
You will be required to pay half of the bond’s face value. For example, a $100 bond will cost you $50. Once you have the bond, you may decide how long you want to keep it for—anywhere from one to thirty years. You’ll have to wait until the bond matures to earn the full return of twice your initial investment (plus interest). While you can cash in a bond earlier, your return will be determined by the bond’s maturation schedule, which will increase over time.
The Treasury guarantees that Series EE savings bonds will achieve face value in 20 years, but Series I savings bonds have no such guarantee. Keep in mind that both attain their full potential value after 30 years.
Is it possible to give money to my grandchildren tax-free?
It’s a good idea to speak with an experienced Massachusetts estate planning attorney if you’re thinking about giving money to your grandchild. Here are several possibilities:
Give cash
Of course, this is the most straightforward method. In 2021, you can give each grandchild up to $15,000 per year without having to declare the gifts or facing any federal tax implications. This is true for both partners in a married partnership. They can also gift that sum to as many grandchildren as they wish. So, if Stan and Mary had three grandchildren, they could present $90,000 to them in 2021 and avoid paying gift taxes on it. To their grandkids, the gifts will not be considered taxable income.
Giving a financial present has the disadvantage of not being used in the way you intended. Perhaps you expected the money to be spent towards the child’s future education, but instead they chose to spend it on a vacation or a car.
plans
You might invest the funds in a 529 college savings plan, which covers the expense of higher education. Contributions to 529 plans are tax-deductible. They’re in mutual funds, which means they have the potential to develop. As part of a state-sponsored investment plan, the state works with an asset management firm to manage the investment according to the plan’s specifications.
Individual contributions to Massachusetts 529 plans of up to $1,000 per year and up to $2,000 per year for married couples filing jointly are tax deductible in Massachusetts.
Custodial accounts
Minors’ assets are held and protected in custodial accounts until they attain the age of majority, which in Massachusetts is 21. The account’s originator (typically a parent or grandparent) names a custodian to manage the account for the underage child. The custodian can take money out to meet the child’s legitimate needs. These accounts usually allow you to invest in stocks, bonds, and mutual funds. Custodial accounts such as the UGMA (Uniform Gift to Minors Act) and UTMA (Uniform Transfer to Minors Act) are popular options for college savings.
Savings bonds
The Treasury Department of the United States issues these to fund government activities. The money you put into a savings bond is a loan to the United States government. Interest can be earned on the savings bond for up to 30 years. The savings bond can be redeemed for its face value plus any interest collected after 12 months. If you redeem the bond before it reaches the age of five years, you’ll lose the last three months’ interest.
Wills and trusts
Money can also be left in a will or a trust. One of the biggest benefits of using a Massachusetts trust is that it may simply be customized to meet your specific needs. For example, you could opt to give the recipient a certain percentage of the assets at specific ages. One option is to give them 25% of the assets when they reach the ages of 21, 25, 30, and 35.
What is the maximum amount of money a grandparent can gift a grandchild tax-free?
Giving assets to your grandchildren can do more than help them get a good start in life; it can also help you minimize the amount of your estate and the tax you’ll owe when you die.
Giving the grandchild an outright gift is perhaps the easiest method of presenting. Without having to record the gifts, you can give each grandchild up to $16,000 each year (in 2022). If you’re married, you and your partner can each give such a present. A married couple with four grandkids, for example, can give away up to $128,000 per year without incurring gift tax. Furthermore, the gifts will not be taxed as income to your grandkids (although the earnings on the gifts if they are invested will be taxed). Just keep in mind that any donation could jeopardize your Medicaid eligibility.