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Gifting I-Bonds
Old 08-31-2013, 08:58 PM   #1
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Gifting I-Bonds

I have a bunch of I-Bonds. I know that I will have to pay taxes on the gains when I redeem them.

I also know the gains can be free from taxes if they are used for educational purposes. I also know that as a grandparent (rather than a parent) of kids who will be going to college, I am ineligible for that tax break.

So my question is: can I gift individual I-bonds to my grandchildren - or to their parents - (as l long as I keep within the annual gifting limitations) and can the recipient of the gifted I-Bonds then use them tax-free for tuition?
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Old 09-01-2013, 07:56 AM   #2
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As a guess, "no"... It looks to me as if the bonds that you own will be taxable to the name of the bondholder, or in the distribution of an estate. In other words, unless the bond is issued to the "owner" within 5 days of purchase, or as an education allowed investment, that the bond would have to be cashed before gifting.

But that's just a guess, based on the rules listed in the "treasurydirect" pages.

Will watch for a better answer.
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Old 09-01-2013, 09:33 AM   #3
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f1610........clever idea! (kind of like gifting appreciate securities to kid)
but I believe imoldernu is correct in his conclusion.....not that the bond has to be actually cashed.....but , in effect , the same thing since the interest must be declared as income when transfered.

see this: http://www.marketwatch.com/story/how...-savings-bonds

also see this transfer form: http://www.treasurydirect.gov/forms/sav4000.pdf
which contains this:

TAX LIABILITY: If the name of a living owner or principal coowner of the bonds is eliminated from the registration, the owner or principal coowner must
include the interest earned and previously unreported on the bonds to the date of the transaction on his or her Federal income tax return for the year of the
reissue. (Both registrants are considered to be coowners when bonds are registered in the form: "A" or "B.") The principal coowner is the coowner who
(1) purchased the bonds with his or her own funds, or (2) received them as a gift, inheritance, or legacy, or as a result of judicial proceedings, and had them
reissued in coownership form, provided he or she has received no contribution in money or money's worth for designating the other coowner on the bonds.
If the reissue is a reportable event, the interest earned on the bonds to the date of the reissue will be reported to the Internal Revenue Service (IRS) by a
Federal Reserve Bank or Branch or the Bureau of the Public Debt under the Tax Equity and Fiscal Responsibility Act of 1982. THE OBLIGATION TO
REPORT THE INTEREST CANNOT BE TRANSFERRED TO SOMEONE ELSE THROUGH A REISSUE TRANSACTION. If you have questions
concerning the tax consequences, consult the IRS, or write to the Commissioner of Internal Revenue, Washington, DC 20224. Unless we are otherwise
informed, the first-named coowner will be considered the principal coowner for the purpose of this transaction.
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Old 09-01-2013, 09:44 AM   #4
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Quote:
Originally Posted by friar1610 View Post
I have a bunch of I-Bonds. I know that I will have to pay taxes on the gains when I redeem them.

I also know the gains can be free from taxes if they are used for educational purposes. I also know that as a grandparent (rather than a parent) of kids who will be going to college, I am ineligible for that tax break.

So my question is: can I gift individual I-bonds to my grandchildren - or to their parents - (as l long as I keep within the annual gifting limitations) and can the recipient of the gifted I-Bonds then use them tax-free for tuition?
Well, if the bonds currently only have "Friar1610" as the sole owner, and there is no co-owner listed, you could conceivable add a grandchild as a co-owner or beneficiary. Then, after your passing, the grandchild would cash in the I-bond and declare the income.

Also, even if you were still alive and kickin', if your grandchild were added as a co-owner now, and later your grandchild cashed it in, either co-owner can cash in the savings bond, but whomever gets the money is supposed to declare the interest as income when it's cashed in (based on my understanding).
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Old 09-02-2013, 10:40 AM   #5
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Thanks for the responses. My spouse is currently a co-owner. I guess it won't work but I thought I had figured a way around the taxes. Uncle is too smart for me, I guess.
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