With this strategy, you can bypass the $10,000 per person purchase limit, but there are potential drawbacks.
By David Enna, Tipswatch.com
Throughout this year, I have read with — at first, disbelief, and later, fascination — as devotees of U.S. Series I Savings Bonds discovered and successfully exploited a TreasuryDirect “gift box strategy” to accumulate I Bonds beyond the $10,000 per person yearly purchase limit.
Although the strategy is legit and perfectly legal, I haven’t written about it and I don’t intend to use it. But a lot of people have asked me about it. If you intend to use this strategy, I’d advise completing the process on TreasuryDirect by Wednesday, Oct. 26, if you are aiming to lock in the current 9.62% interest rate for a full six months, and then 6.48% for the next six months.
Update: The TreasuryDirect site was overwhelmed by I Bond demand Wednesday and almost all users experienced very slow loading pages, or no loads at all. I recommended making your I Bond transactions on Wednesday for this very reason, to avoid this sort of pitfall. Making a purchase on Thursday will be fine, and Friday will also be likely to be OK. Let’s hope the site returns to normal.
Friday morning: TreasuryDirect’s opening page is now loading. It took me two times but I was able to log into my account. Good luck to all.
Harry Sit of the TheFinanceBuff.com was the first to write about this strategy on Dec. 27, 2021, in an article titled “Buy I Bonds as a Gift: What Works and What Doesn’t.” When people ask me about the gift box, I point them to this article, which was well researched and thorough. So, go read that article if you don’t know about the strategy.
Another article was just posted this week by Jeremy Keil, a financial adviser who was an early advocate of the current I Bond surge (and has written a guest post for this site). His article is titled: “Buy more than $10,000 in Series I Savings Bonds through gifting with your spouse“. Keil, who recently completed an I Bond gift box purchase, includes links to TreasuryDirect content explaining how the gift box works. He details a strategy for a couple purchasing $60,000 in I Bonds before the end of October, with $20,000 being delivered in 2023 and $20,000 in 2024.
Some basics of the gift box strategy:
- When you place an I Bond into the gift box, it begins earning interest in the month of purchase, just like any other I Bond, and continues earning interest just like any I Bond. However, this money is no longer yours. It belongs to the recipient of the gift.
- The purchase does not count against your purchase limit for that year. It will count against the purchase limit for the recipient, in the year it is granted.
- Gift purchases are limited to $10,000 for each gift, but you can make multiple gift purchases of $10,000 for the same person. But the recipient can only receive one $10,000 gift a year, and that gift counts against their purchase limit for that year.
- You must provide the recipient’s name and Social Security Number when you buy a gift. The recipient doesn’t need to have a TreasuryDirect account … yet. Only a personal account can buy or receive gifts. A trust or a business can’t buy a gift or receive a gift.
- “I Bonds stored in your gift box are in limbo,” Harry Sit notes in his article. “You can’t cash them out because they’re not yours. The recipient can’t cash them out either because the bonds aren’t in their account yet.”
- The recipient will need to open a TreasuryDirect account to receive the I Bond. Once it is delivered, the money is the recipient’s, who can then cash out or continue to hold the I Bond.
Here is TreasuryDirect’s video explaining the step-by-step process to complete a gift box purchase:
In his article, Harry Sit also provides a very useful step-by-step guide to completing a gift-box purchase.
Would this strategy trigger a gift tax?
Sit notes there is no limit on how much you can give your spouse as a gift, so this strategy works especially well for cross-gifting: Spouse 1 to Spouse 2 … and Spouse 2 to Spouse 1, each using their separate TreasuryDirect accounts. Rules are more complicated for gifts to a non-spouse, so refer to Harry’s article for more detail.
What are the potential negatives to this strategy?
Placing $10,000 in the gift box puts that money in limbo, awaiting future delivery. It is no longer your money, and it really isn’t the recipient’s money either until the gift is delivered. So if you stack up multiple $10,000 purchases for gifting well into the future, the potential downside is that your circumstances could change.
Also, what if the I Bond’s fixed rate rises dramatically in November 2022 or May 2023? You would probably want to bypass delivering the gift I Bond beyond 2023 to take advantage of the higher fixed rate, which is highly desirable. That means you would have to wait until the next time the I Bond’s fixed rate falls to 0.0%.
Sit also warns about forgetting about the gifts. His advice: “If you’re intentionally pre-purchasing gifts to take advantage of temporarily high interest rates, tell the recipient you’re holding a gift. Set recurring calendar reminders to tell yourself and the recipient you still have undelivered gifts in the gift box.”
What if the gift recipient dies?
When you register the gift, you can name a second owner or beneficiary for the I Bond. Sit says, “If the gift recipient dies before you deliver the gift, the designated second owner or beneficiary will inherit your gift. You can’t name yourself as the second owner of the gift but you can name yourself as the beneficiary of the gift.”
If you die before granting the gift, the recipient still owns it and will be able to claim it through TreasuryDirect.
Why didn’t I use this strategy?
I admit to being quite skeptical at first that TreasuryDirect would allow multiple, stacked $10,000 purchases in one account. But by all accounts, it has been working fine (except for a brief outage recently after a site update). I thought about doing this, but opted to just stay with my plan of buying $10,000 a year in our two accounts, every year, and hoping for a higher fixed rate in 2023 and beyond.
But is it a sound strategy? Yes, I think it is, especially for short-term investors interested in locking in a high rate of return over the next 12 to 15 months (taking into account the three-month interest penalty for redemptions within 5 years).
Why complete the gift purchase by Wednesday?
Thursday would probably be fine, but you want to make sure to complete any I Bond transaction early enough to ensure that TreasuryDirect logs it as an October 2022 purchase, which means you will receive 9.62% for a six months, and then 6.48% for six months. It’s wise to give TreasuryDirect a couple of business days to complete any transaction.
If you decided to use the I Bond gift strategy, feel free to post about your experience and thoughts in the comments section below.
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he discusses can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.