Creative Strategies To Purchase I Bonds Above The $10k Limit

U.S. inflation rocketed to fresh 40-year highs in June, sitting at 9.2%. This news will likely force the hand of the Federal Reserve to extend a streak of interest-rate hikes. Years ago, in high-interest rate environments, it was common for people to buy U.S. government savings bonds, usually Series EE Bonds. Over the years, as interest rates declined, these savings bonds fell out of favor with investors. However, a relative of those bonds is having a moment: the Series I Savings Bond. What makes this product so enticing right now? The “I” stands for inflation, which factors into these bonds’ returns. With inflation at record highs, the I Bond yield of 9.62% is perhaps the highest and safest investment option available to most people. The caveat? An individual can’t purchase more than $10,000 in I Bonds annually. You figured it was too good to be true, right? Well, not so fast. We’ve found four legitimate ways to go above and beyond this limit. 

1. Buy I Bonds In Your Trusts

The $10,000 limit on I Bonds is per individual. However, if you have a trust (or trusts), each one can also purchase I Bonds up to the annual limit. Trusts are excellent investment vehicles that come with several benefits. They allow you to control how and to whom your assets are distributed. You can create trusts to accomplish any number of your financial goals:

• Passing assets to your children.

• Managing your charitable giving.

• Providing for yourself in the event you are incapacitated. 

I Bonds can be a fantastic investment choice for your trust(s), providing a low-risk way to grow your assets and achieve your financial goals. 

2. Purchase I Bonds For Your Minor Children

You can purchase I Bonds up to the annual limit for your kids. But keep in mind that you can’t legally “borrow” their Social Security number(s) to avoid the yearly limit.  You are the custodian of the money, but once your child becomes an adult, you are obligated to turn over the investments to the child. Besides gifting money to your children, I Bonds could also be a wise choice for earmarking college expenses, depending on your child’s age. If you qualify, you may be able to cash out the I bonds without paying federal taxes if you use them for education expenses. However, before employing I Bonds for this purpose, there are things to consider. If the child is too close to needing the money for college, the one-year mandatory holding period on the I Bonds could be problematic. To a lesser extent, you also forgo the last three months of accumulated interest if you sell your I Bonds within five years of the date of purchase. Also, a traditional 529 savings plan might offer more advantages than I Bonds if your child(ren) is quite young. With a long enough time horizon, a growth-oriented investment portfolio should be able to outperform the return on I Bonds. Contact us anytime to discuss your particular situation.

3. Buy I Bonds Via Your Business

Another way to go beyond the $10,000 limit is to buy I Bonds for your business. If you’re self-employed and file taxes on IRS Schedule C, you can purchase up to the $10,000 annual limit for your business and your personal limit. A company can be set up as any one of the following entities:

• LLC

• S-Corp

• C-Corp

• Single (or Sole) proprietorship

• Partnership

Additionally, several towns and counties require business licenses. The presence of any of these—state registration, DBA name, or business license—indicates a business exists independently of the owner. Therefore, the business is entitled to its own $10,000 annual limit. You can repeat this process for as many businesses as you own. For example, some people have a different LLC for every rental property they buy. The idea that a business is distinct from its owner is a fundamental principle in business. The distinction is also enough to satisfy the government’s requirement to purchase additional I Bonds as a separate entity. 

4. Gift I Bonds To Your Spouse 

Giving I Bonds as a gift to your spouse is definitely a way to go above the annual limit, but there are caveats and nuances to be aware of before deciding if this strategy suits your investing goals. You can give your spouse an unlimited gift of I Bonds in a year. However, you must remember a few things to get around the annual limit. For example, you and your spouse each purchase $10,000 worth of I Bonds this year. You can still purchase $30,000 more as a gift for your spouse, but you can only transfer $10,000 per calendar year over three years. And since your spouse has already bought their $10,000 limit this year, you will have to wait until the following year to start transferring the gift. Further, in those subsequent years where you transfer $10,000 of the gift, they cannot buy $10,000 of their own I Bonds. There is good news, however. Even if you can’t gift them immediately, I Bonds start their 12-month mandatory holding period and begin earning interest the moment you purchase them. They will stay in what the Treasury calls your “Gift Box” until you transfer them. Also, since the I Bonds can remain in your gift box until they mature in 30 years, front-loading these purchases can offset the risk that the interest rate declines in the near future. Confusing? Treasury Direct has videos on purchasing and delivering I Bonds as a gift. 

The Bottom Line: Create A Holistic Strategy For Purchasing I Bonds

Due to their unique combination of low-risk and high-rate guaranteed return, I Bonds can be a fantastic investment, especially in an uncertain, high-inflation environment. Using our strategies to go above and beyond the annual limit only increases those benefits for you. That said, you need a sound investment strategy before opening various Treasury Direct accounts for everyone you know. How much do you want to purchase in a year? Why would you benefit from more? How do you plan to leverage the investment? (balance risk, produce income, cash needs, et cetera.)A purchase should make sense for your holistic financial plan, like any investment decision. As we mentioned in another post about I Bonds, before you buy, ask yourself:

• Is your interest in I Bonds due to the recent increase in media coverage, or would you like to learn how they could positively impact your portfolio?

• Do you have excess cash above the $10,000 annual limit you could put to work?

• Do I Bonds align with your risk tolerance? They could be too conservative for your situation.

• What is your current asset allocation? Are you already well exposed to fixed-income assets, or do you want more exposure?

Reach out today to discuss whether our strategies to purchase I Bonds above the $10,000 annual limit would make an excellent addition to your balance sheet.