US savings bond transfers

[Texas Proud]

I am starting to do some research on US savings bonds that my mother has... she bought a good number of them years ago and had them titled in her name with her children as beneficiaries... so 6 kids means 6 bonds bought per year...


Well, they are coming up to maturity in a few years... I do not want all the interest to hit my mothers tax return as we are talking over $36K per year... so I would like to get the bonds to the children and put the tax problem on them (which includes me )....



Not sure of the best way to do this... if they are gifted it looks like she has to recognize the interest on her return... I want to avoid that... I also want to get them to the kids ASAP so they can plan ahead on when they have to recognize the income (matures in about 4 years, but we are talking 5 consecutive years of bonds)....


Has anybody gone down this road? Any suggestions?


BTW, these are in paper form.

 

[meierlde]

I am starting to do some research on US savings bonds that my mother has... she bought a good number of them years ago and had them titled in her name with her children as beneficiaries... so 6 kids means 6 bonds bought per year...


Well, they are coming up to maturity in a few years... I do not want all the interest to hit my mothers tax return as we are talking over $36K per year... so I would like to get the bonds to the children and put the tax problem on them (which includes me )....



Not sure of the best way to do this... if they are gifted it looks like she has to recognize the interest on her return... I want to avoid that... I also want to get them to the kids ASAP so they can plan ahead on when they have to recognize the income (matures in about 4 years, but we are talking 5 consecutive years of bonds)....


Has anybody gone down this road? Any suggestions?


BTW, these are in paper form.

Be Careful of the kiddie tax if the kids are under 24 and in college in this case you pay taxes at trust or estate rates maxing out at 12700. The first 1200 is ok but then you start paying kiddie tax on unearned income. In that case it might be cheaper for your mother to cash the bonds and pay lower tax rates. (18 if not eligible to be a dependend, check for kiddie tax which applies only to unearned income) If everyone is over 24 then comparison of tax rates is called for, depending on income your mother might pay a lower rate than the children. This is a complication giving bonds to adults who pays the lowest tax rate. Note that 36 is at worst a 1 bracket step for singles. Unless all children are over 24 and in the less than 22 percent bracket, it might come out fairly close to a wash of perhaps 2 to 3 percent of the bonds interest. Unless your moms income is above 157k the rate is a max of 24%. (above 157 k it goes to 32 % to 200k and up)

 

[Texas Proud]

Be Careful of the kiddie tax if the kids are under 24 and in college in this case you pay taxes at trust or estate rates maxing out at 12700. The first 1200 is ok but then you start paying kiddie tax on unearned income. In that case it might be cheaper for your mother to cash the bonds and pay lower tax rates. (18 if not eligible to be a dependend, check for kiddie tax which applies only to unearned income) If everyone is over 24 then comparison of tax rates is called for, depending on income your mother might pay a lower rate than the children. This is a complication giving bonds to adults who pays the lowest tax rate. Note that 36 is at worst a 1 bracket step for singles. Unless all children are over 24 and in the less than 22 percent bracket, it might come out fairly close to a wash of perhaps 2 to 3 percent of the bonds interest. Unless your moms income is above 157k the rate is a max of 24%. (above 157 k it goes to 32 % to 200k and up)

Thanks for this... everybody is old so no kiddie tax... everybody has very different tax situations, my brother is in the highest tax bracket and I am trying to keep income low for ACA credits..


I will go back to last year and add an extra 36K to her income and see what happens and 6 to mine...


The thing is someone is going to have to pay taxes... she had planned these going to her kids after she passed, so all along it was going to be their problem (me being one of them)...



I might have to start looking at these to pay for her assisted living instead of selling stocks.... those will get a step up...

 

[albireo13]

Don't forget the gift tax. The exclusion now is $15K/person per year. In other words if your Mom gives bonds worth over $15000 to any one person she will have to pay gift tax.

 

[Texas Proud]

Don't forget the gift tax. The exclusion now is $15K/person per year. In other words if your Mom gives bonds worth over $15000 to any one person she will have to pay gift tax.

Thanks, I know... but it is less than that and there would be no tax due as she still has plenty of exemption...

 

[MooreBonds]

I am starting to do some research on US savings bonds that my mother has... she bought a good number of them years ago and had them titled in her name with her children as beneficiaries... so 6 kids means 6 bonds bought per year...


Well, they are coming up to maturity in a few years... I do not want all the interest to hit my mothers tax return as we are talking over $36K per year... so I would like to get the bonds to the children and put the tax problem on them (which includes me )....


BTW, these are in paper form.

the general rule is that if a living owner is removed from the bond and replaced with someone else, then there is income tax due immediately on accrued interest. However, you can add a co-owner to a savings bond without income tax impact. Also, just a reminder that the IRS does allow you to declare interest earned on a savings bond before cashing it in. The only catch is that you must then keep declaring it each year thereafter until it is cashed in. You can't switch back to the other method. Also, you are supposed to also apply that method to ALL savings bonds you have if you do elect to do that (way around it: have your mother retitle the bonds one per year, so that you and your siblings only have 1 new bond each year that you would have to start declaring interest on as it accrues - if you choose to use that method, if your income will increase in future years).

Also, if you do use the accrual method, make sure to keep handy copies of your Schedule B form that shows each year you claimed interest (I do it by listing an entry like "Accrued interest: savings bond issued Feb 1992). Then, when you finally cash it in, include copies of prior years' Schedule B to include with that year's tax return, and on Schedule B, you would have a few entries:

If you changed to the accrual method in 2016 tax year, and cashed in the savings bond in 2019 tax year, your bank would give you a 1099 for the full interest earned of $5,492. Then, for 2019 taxes, on schedule B, you would list:

Savings bond redemption +$5,492
Savings bond previously declared interest (2016) -$4,029
Savings bond previously declared interest (2017) -$385
Savings bond previously declared interest (2018) -$401

However, when you re-issue a bond, it must be then deposited electronically into a TreasuryDirect account (they don't mail you a new paper bond)

https://www.treasurydirect.gov/indiv/tools/tools_basictransactions.htm#reissue

 

[Texas Proud]

So the only way to do this is to change the language on the bond from my mom as owner with kids as bene to my mom AND a kid as owner...


Then have the kid cash the bond in and they have to deal with the interest...

 

[meierlde]

Thanks for this... everybody is old so no kiddie tax... everybody has very different tax situations, my brother is in the highest tax bracket and I am trying to keep income low for ACA credits..


I will go back to last year and add an extra 36K to her income and see what happens and 6 to mine...


The thing is someone is going to have to pay taxes... she had planned these going to her kids after she passed, so all along it was going to be their problem (me being one of them)...


I might have to start looking at these to pay for her assisted living instead of selling stocks.... those will get a step up...

Well if she pays the taxes the amount her kids will get will go down so that in one sense it is a wash, the beneficiaries at the end of the day would get the same amount after taxes in either case, (plus or minus which tax bracket folks are in and plus or minus secondary order tax effects)

 

[Texas Proud]

Well if she pays the taxes the amount her kids will get will go down so that in one sense it is a wash, the beneficiaries at the end of the day would get the same amount after taxes in either case, (plus or minus which tax bracket folks are in and plus or minus secondary order tax effects)

That is the point... mom bought with passing them at her death... so the taxes would go to the individual kids.... some have very low to no tax liability and some have really large taxes...


Having mom pay all the taxes benefits some at the expense of others... and also not what was anticipated...


I can wait a few years as there are still a couple of years to go... and I might be cashing them in to pay for her memory care anyhow.... I know that I will be cashing in her low interest rate ones the next time I need cash...

 

[MooreBonds]

I might have to start looking at these to pay for her assisted living instead of selling stocks.... those will get a step up...

Depending on how complicated you want things to get....you could look at having her cash in the savings bonds that have kids' names that are in high tax brackets, and instead have them divide up the investment account w/ equities in them. And have the ones in low tax brackets inherit the savings bonds.

 

[coveredbridge]

You don't have to wait until the bonds mature to redeem them. Spreading out the redemptions over the next 10 years will reduce the interest reported each year by roughly half.