Savings Bond For New Niece?

[Dog]

As a baby gift, I would to send my new niece (expected in April) with $ for a start on her financial future. I know people use to purchase Savings Bonds, but that doesn't seem as popular these days.
Any ideas or suggestions. Her Dad is serving in the AF and they are stationed in Germany.


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[ERD50]

Maybe I'm just dense, but I consider the Savings Bonds that my kids have got from relatives to be one of the most complex financial things we own.

There are face values, interest rates, final value, different dates that determine different things, they may stop paying interest at a certain date, or a lower rate - you need to do some work just to figure this out for each and every bond. I find mutual funds, stocks, even options to be less confusing.

Got a mutual fund - just look up the NAV, done. Buy and sell easily. Personally, I would never gift a savings bond, I think it's just a throwback to thinking of it as a 'patriotic' investment.

JMO.


-ERD50

 

[ducky911]

I would look into starting a 529 account, will out perform bonds by a mile and are tax free. I set two of these up for my grandkids and they have done well.


Bob

 

[LARS]

Maybe I'm just dense, but I consider the Savings Bonds that my kids have got from relatives to be one of the most complex financial things we own.

There are face values, interest rates, final value, different dates that determine different things, they may stop paying interest at a certain date, or a lower rate - you need to do some work just to figure this out for each and every bond. I find mutual funds, stocks, even options to be less confusing.

Got a mutual fund - just look up the NAV, done. Buy and sell easily. Personally, I would never gift a savings bond, I think it's just a throwback to thinking of it as a 'patriotic' investment.

JMO.


-ERD50

I guess I kind of disagree. Easy enough to look up terms, values, dispose, etc with Treasury Direct account. Second, they avoid all tax issues until you sell, or the bond matures, and there is zero need for record keeping (i.e. basis, etc).

Now whether it is the "best" investment return is another matter, but I certainly see nothing wrong with them as a "gift".

 

[jfn111]

I think most people got turned off by the fact you can't get an actual bond anymore. You have to open up a Treasury Direct account and the baby has to have a SS number before you can gift to her.

 

[Gill]

I think most people got turned off by the fact you can't get an actual bond anymore. You have to open up a Treasury Direct account and the baby has to have a SS number before you can gift to her.

I agree. They don't make much sense as gifts any more because paper bonds are no longer available.
Bruce

 

[seraphim]

I'd go mutual fund depending on how much you're gifting. I don't know about 529s- no experience with them. Nothing wrong with a bond either. Make sure any account is joint - your name and the child's.


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[unno2002]

[FONT=&quot]When our daughter was born, I established a Schwab custodial account for her. Whenever she got a gift of cash, we put it in that account, in addition to my salary allotment going there.[/FONT]
[FONT=&quot]
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[FONT=&quot]Custodial Savings Account: Schwab Brokerage: Custodial Account[/FONT]
[FONT=&quot]
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[FONT=&quot]No fee to create the account, and it looks like a $100 minimum to open it. You of course need all the names, SS numbers, etc., but the account gives the excuse to at the appropriate age start education of the child on investing.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]Or, give a silver dollar or two, but those require being carried around, not lost or spent, etc....
[/FONT]

 

[ERD50]

Maybe I'm just dense, but I consider the Savings Bonds that my kids have got from relatives to be one of the most complex financial things we own. ...

I guess I kind of disagree. Easy enough to look up terms, values, dispose, etc with Treasury Direct account. Second, they avoid all tax issues until you sell, or the bond matures, and there is zero need for record keeping (i.e. basis, etc).

Now whether it is the "best" investment return is another matter, but I certainly see nothing wrong with them as a "gift".

Yes, but you need to look up each and every one, and type in a long serial number and date. If you have three kids and they get one at a holiday and birthday for 16 years, that's a relatively lot of book-keeping for relatively small amounts of money.

Nowadays especially, the broker tracks cost basis, so that's not an issue for a mutual fund, even with reinvestment of any distributions.

-ERD50

 

[David1961]

I think most people got turned off by the fact you can't get an actual bond anymore. You have to open up a Treasury Direct account and the baby has to have a SS number before you can gift to her.

+1. And I believe either the baby and/or her parents need to have a Treasury Account as well.

 

[Bestwifeever]

If the family will stay in the Air Force and relocate every few years, they might appreciate the savings bond's online existence vs a physical document to keep track of.

We gave a nephew several savings bonds in his first few years of life--easy to do, and they seemed to be much appreciated.

 

[Bestwifeever]

I think most people got turned off by the fact you can't get an actual bond anymore. You have to open up a Treasury Direct account and the baby has to have a SS number before you can gift to her.

I think most young parents are applying for SS numbers almost at birth these days as they need to be on tax returns and possibly health insurance policies.

 

[sengsational]

I think most people got turned off by the fact you can't get an actual bond anymore. You have to open up a Treasury Direct account and the baby has to have a SS number before you can gift to her.

The treasury direct account is new, but you have had to have an SSN for 20-plus years.

[FONT=&quot]When our daughter was born, I established a Schwab custodial account for her. Whenever she got a gift of cash, we put it in that account, in addition to my salary allotment going there.[/FONT][FONT=&quot]
[/FONT]

These kinds of accounts have annoyances, like since they are in the kid's name, 25% of it every year of college is taken away from financial aid, whereas in a 529 account, less than 6% is taken away.

Yes, but you need to look up each and every one, and type in a long serial number and date. If you have three kids and they get one at a holiday and birthday for 16 years, that's a relatively lot of book-keeping for relatively small amounts of money.

Book keeping is a PITA with bonds. My kids got STRIPS from their grandmother. Not a huge deal, but I got about 40 1099-OID's over the years that I needed to put on my taxes, and then take off as a "nominee amount". Not that hard, but just one more thing.

I think most young parents are applying for SS numbers almost at birth these days as they need to be on tax returns and possibly health insurance policies.

They assigned them at the hospital back in 1992.

My recommendation would be a 529 account, or just set it aside in your name with the understaning it's hers.

 

[jfn111]

I think most young parents are applying for SS numbers almost at birth these days as they need to be on tax returns and possibly health insurance policies.

That is very true. The OP was talking about a baby coming in April so I "assumed" they wanted to make the gift before the baby arrived in which case they wouldn't have a SS number yet. (My assumption could be wrong )

 

[txtig]

My dad bought $50 Savings Bonds for each of his grandchildren (all 19 of them!!) when they were born and again for each of their birthdays and as Christmas presents. So they each has a nice stack of them once they were college age. My youngest son (age 21) is about to cash his in. We calculated the values online and the very low return was pretty disappointing. My first grandchild is due in a couple of months and I'm considering opening some sort of mutual fund account in his name. Just have to decide on the type of account.


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[Hermit]

I just cashed in a stack of savings bonds in December. To gain the tax savings for education is somewhat complex. Income under $74,000, bonds in parent's name not child's name, etc. Tracking their value is very easy with Savings Bond Wizard which is available for download at Treasury Direct. Cashing in the paper ones was not easy. I had to go to four different banks before I could find one that would cash them in for me. (I do all my banking on-line.)

 

[karluk]

I just cashed in a stack of savings bonds in December. To gain the tax savings for education is somewhat complex. Income under $74,000, bonds in parent's name not child's name, etc. Tracking their value is very easy with Savings Bond Wizard which is available for download at Treasury Direct. Cashing in the paper ones was not easy. I had to go to four different banks before I could find one that would cash them in for me. (I do all my banking on-line.)

I have taken the savings bond exclusion every year since 2003 to fund 529 plans. Your information needs a little clarification. In the first place, there is a different income limit for single filers vs. joint filers. For tax year 2014, singles and heads of households qualify for a full exclusion on MAGI up to $76,000 and joint filers and qualifying widow(er)s qualify for a full exclusion on MAGI up to $113,950. But these aren't the actual income limits. There are partial exclusions up to $91,000 for singles and up to $143,950 for joint filers. The limits are adjusted every year for inflation, which is probably why you quoted a limit of $74,000

 

[harley]

What about shares in individual companies? Disney, Coke, Apple, something a kid might like to own a piece of, assuming you can find something you think might be around in 18 or so years. It could be added to for birthdays and such, and might give the child a start in understanding finance, which would be an outstanding gift.

I assume you'd need to have the parents start a custodial account at Schwab or TDAmeritrade or some such, but that's easy to do. If you guess right the investment could be quite significant by the time she reaches adulthood. Even if you guess wrong it could tweak her interest in things financial.

Or you could always get her a onesie.

 

[karluk]

An additional tidbit: You need to have qualifying educational expenses at least as large as the total value of the savings bonds you cash in. But the deduction is worth only the portion of the savings bonds that represents accrued interest. To take a concrete example, suppose you cash in $6,000 worth of bonds that you purchased for $5,000. You must have the full $6,000 in qualifying educational expenses, but the impact on your taxes is limited to the $1,000 of interest that you can exclude. You don't lose the exclusion completely with less than $6,000 in qualifying expenses, but you are limited to a partial exclusion.

It's never been a factor for me, but I am also fairly certain that you can't use the same qualifying expenses for both the savings bond exclusion and to qualify for tax credits, such as the American Opportunity Credit. If this is an issue for you, it's overwhelmingly likely that the American Opportunity Credit is worth more than the savings bond exclusion.

 

[Hermit]

I just cashed in a stack of savings bonds in December. To gain the tax savings for education is [-]somewhat[/-] very complex...

An additional tidbit: You need to have qualifying educational expenses at least as large as the total value of the savings bonds you cash in. But the deduction is worth only the portion of the savings bonds that represents accrued interest. To take a concrete example, suppose you cash in $6,000 worth of bonds that you purchased for $5,000. You must have the full $6,000 in qualifying educational expenses, but the impact on your taxes is limited to the $1,000 of interest that you can exclude. You don't lose the exclusion completely with less than $6,000 in qualifying expenses, but you are limited to a partial exclusion.

It's never been a factor for me, but I am also fairly certain that you can't use the same qualifying expenses for both the savings bond exclusion and to qualify for tax credits, such as the American Opportunity Credit. If this is an issue for you, it's overwhelmingly likely that the American Opportunity Credit is worth more than the savings bond exclusion.

I have taken the savings bond exclusion every year since 2003 to fund 529 plans. Your information needs a little clarification. In the first place, there is a different income limit for single filers vs. joint filers. For tax year 2014, singles and heads of households qualify for a full exclusion on MAGI up to $76,000 and joint filers and qualifying widow(er)s qualify for a full exclusion on MAGI up to $113,950. But these aren't the actual income limits. There are partial exclusions up to $91,000 for singles and up to $143,950 for joint filers. The limits are adjusted every year for inflation, which is probably why you quoted a limit of $74,000

What about shares in individual companies? Disney, Coke, Apple, something a kid might like to own a piece of, assuming you can find something you think might be around in 18 or so years. It could be added to for birthdays and such, and might give the child a start in understanding finance, which would be an outstanding gift.

I assume you'd need to have the parents start a custodial account at Schwab or TDAmeritrade or some such, but that's easy to do. If you guess right the investment could be quite significant by the time she reaches adulthood. Even if you guess wrong it could tweak her interest in things financial.

Or you could always get her a onesie.

How about just giving the new kid a crisp, new $100 bill?

 

[karluk]

How about just giving the new kid a crisp, new $100 bill?

Quite frankly, that's what I would do in these days of ultra low interest rates. DD's godmother gave her savings bonds every year as a birthday gift until she was in college. I was very grateful for the thought, which IMO greatly exceeds what should be expected from a godmother, but thought with dismay that savings bonds had no chance of growing as fast as rapidly increasing college costs.

Back when I bought my savings bonds, it was different. I bought a total of $25,000 back when they had a guaranteed 6% minimum interest rate. That relatively generous interest rate, plus the ability to cash them in tax free by investing the proceeds in 529 plans, made those savings bonds easily the best low risk investment I've ever made. The initial $25,000 investment, plus the savings bond interest, plus the growth of the investments in the 529 plan, have been enough to fully fund two college educations at public institutions. There may be people who have done even better, but I personally am not aware of anybody who has funded their children's college costs more effortlessly.

Sadly, those days are over. Savings bonds, with the possible exception of I-bonds, are no longer a sensible option for long term college savings.

 

[karluk]

Oh, one other thing. The 529 contributions qualified us for a credit on our state taxes every year since 2003. We paid 0% Federal tax on that initial $25,000 investment and got credits that were worth many, many thousands of dollars off state taxes. It makes me smile every time I think about how great a decision it was to put that money into savings bonds. I wish all of my investment decisions had turned out as well.

 

[mystang52]

When my first grandson was born, I bought him a paper I Bond. By the time grandson # 2 came along, and granddaughter # 1, paper bonds were gone. I did buy each of them an electronic I Bond, but I have to admit it's just not the same, emotionally.
My plan was to buy more Bonds at each of their birthdays, but forwarding an email with the Bond information is just a bit too cold. So, I'll look at other more tangible options - like crisp bills.

 

[samclem]

+1 on the 529 account. If I expected to be making additional contributions, I'd set one up myself with niece as beneficiary (then I'd get the state tax deduction). While the law allows the beneficiary to be changed (say, if niece chooses not to go to college/trade school, etc), if these were gifts to her, I'd just cash them out, give the $$ to her and take the tax hit in that case. If this is a one-time thing, maybe "ask" (suggest) if niece's parents had set up such an account and just make a contribution. Send a card either way. The investment options vary, but many states offer low-cost index funds or target-date funds that get more conservative as the anticipated year of use gets closer.

I wouldn't do savings bonds--just too much of a PITA.

 

[38Chevy454]

X3, 529 is what I would do. You may even get a tax break from your state on the 529 deposit (good for you) and it grows like a Roth for your niece with tax free withdrawals for education expenses (good for her).