Reader questions: Buying and redeeming I bonds
Q: If I want to purchase I bonds for my grandchildren, what is the procedure?
A: The U.S. Department of the Treasury operates a website, TreasuryDirect (treasurydirect.gov), that lets you buy and redeem securities directly in paperless electronic form. The homepage of the site has a link to a page titled “Gift savings bonds.” That page explains how accounts can be established for you and your grandchildren, so you can purchase I bonds for them whenever you wish.
Q: I am interested in purchasing I bonds for my revocable living trust. Is that possible? I went to the TreasuryDirect website, but there is no reference to living trusts. Do you know whether you can purchase I bonds in a revocable living trust? If so, what are the limits regarding yearly purchases?
A: I have touched base with a specialist of TreasuryDirect regarding estate planning issues. He indicated that I bonds can be purchased for revocable living trusts. In a calendar year, the purchase of electronic I bonds through TreasuryDirect is limited to no more than $10,000 per individual. (Note: In a recent column about I bonds, the limit was misstated as $100,000.) The account should be established with the name of the trust. Individuals who want information about establishing an account should contact TreasuryDirect at 844-284-2676, extension 7.
Q: I purchased $30,000 in paper I bonds over a few years from a bank, which I wanted to redeem in 2021 for tax purposes. When I talked to a representative of TreasuryDirect, I was told to fill out a form, have it notarized and send the paper bonds to Minneapolis. I sent the bonds by priority mail. According to the post office, the bonds were received in Minneapolis on Dec. 16. Yet I have not received the proceeds of the redemption in my bank account, so it does not seem that the redemption has taken place in 2021, and I will not be able to report the sale in 2021. Can you provide me any information as to how long such a transaction would take place?
A: I contacted TreasuryDirect and provided them with the information you gave me. They indicated that if they received the bonds on Dec. 16, it would take approximately one week before the redemption was entered into the system, and another three to four weeks before the redemption would be completed. Unfortunately, the redemption would be completed in 2022, so you will not be able to report the capital gain until 2022 on your tax return.
Q: In your recent article regarding I bonds, you indicated that there are tax advantages associated with using the
proceeds from I bonds to pay for qualified educational expenses. Are there income limits associated with using the proceeds from these bonds?
A: There are limits based on your adjusted gross income (AGI). In 2021, when you redeem eligible Series EE and I bonds to pay qualified higher educational expenses, the interest on these bonds is not taxable, but the tax break phases out if parents owning the bonds have AGIs above $83,200 for single filers and $124,800 for married couples filing jointly. The interest exclusion from income is not available for taxpayers filing as married filing separately. For more information, see the instructions for IRS Form 8815.