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- You can only purchase US savings bonds from the US government’s TreasuryDirect website.
- Both the buyer and gift recipient must have a TreasuryDirect account, and there’s a $10,000 purchase cap.
- You can only send electronic bonds as a gift, and there’s no limit on the number of recipients you can gift to or how many times you can gift to them.
Gifting savings bonds might be a great option for those in search of an asset that can appreciate over the long term.
Unlike stocks, these debt instruments tax the interest you earn and count it as income, but they have high interest-earning potential, and they can even be used to pay for higher education.
Below, we take a closer look at how gifting savings bonds works, as well as how the process varies when it comes to contributions to individuals and charities.
Who’s eligible to gift bonds?
Anyone with a TreasuryDirect account can gift savings bonds as long as the person to whom they’re gifting the bonds also has a TreasuryDirect account, according to Alexander Voigt, founder and CEO at Daytradingz.com.
You’ll need at least $25 to buy an electronic savings bond, and you can buy one for as much as $10,000. However, if you’re looking to gift bonds to someone under the age of 18 (or their state’s age of majority), that person’s parents must set up a minor-linked account with their TreasuryDirect account, according to Voigt.
You’ll also only be able to gift bonds in electronic form.
Gifting bonds: How does it work?
Investors can currently only purchase EE or I savings bonds directly from the US government, and, as mentioned earlier, you’ll need a TreasuryDirect account to do so.
“You need to buy the gift savings bonds first on your behalf with your account and hold it for a minimum of five business days before you can deliver them as a gift,” Voigt explains. During the purchasing process, he adds, it is already required to enter the gift recipient’s social security number and name, but it’s crucial to click on the box that specifies “This Is A Gift” when buying the bonds.
I savings bonds, on the other hand, have 6.89% interest rates if you buy them within the same dates as the EE savings bonds. Another difference is that the interest rate for an I bond savings changes every six months. Plus, these bonds can be electronic or paper, and you can only buy them in paper form if you use your tax refund.
How to gift bonds to charity
You are not limited to individuals when it comes to gifting bonds. You can also gift bonds to charities, but as with individuals, the charity will need to have established a TreasuryDirect account in order for you to gift the bond. The platform offers accounts for the following types of entities:
- Limited liability companies (LLCs)
- sole proprietorships
- Professional limited liability companies (PLLCs)
- Living estates
- Deceased estates
Therefore, as long as the charity to which you’d like to gift the bond is legally organized as one of the above mentioned entities, you’ll be able to transfer bonds. You’ll generally need things like the charity’s name, its account information, and the details of the bond you’re gifting in order to fulfill the transfer.
“The buyer of the gift savings bond sees the bonds generally issued to the ‘Gift Box’ in their Treasury Direct account within one business day,” Voigt says. In the final step, he adds, the buyer of the gift savings bond has to go into their Gift Box to select the bond they wants to deliver, enter the recipient’s TreasuryDirect account number, and submit the request.
Are there any tax benefits that gifting bonds provides?
The government taxes mainly earn the interest savings bonds, and these results in federal income taxes, gift taxes, excise taxes, federal estate taxes, and state estate or inheritance taxes.
But TreasuryDirect offers an exit route from paying taxes on your bond’s interest. You can avoid taxes if you use the interest to pay for higher education expenses. A downside, though, is that this perk is limited to those who were 24 years or older when the bond was issued. This means that you can’t offset taxes for the benefit of a child’s education, unless the bond is registered in your name (and you were at least 24 years old when you bought it).
Which other investment types can you gift?
You can gift anything, including traditional investments like stocks, bonds, and mutual funds, or alternative assets like precious metals and physical items. But you’ll still need to be mindful of the 2022 $16,000 IRS gift allowance if you’re transferring investments to individuals. (The allowance increases to $17,000 in 2023.)
There isn’t a limit on how much you can possess in savings bonds, but there is a limit on how much you can purchase for yourself each year. For instance, each year the US government lets you purchase a maximum of $10,000 in electronic EE savings bonds, $10,000 in I bonds, and $5,000 in paper I bonds.
In addition, any bonds you gift won’t count toward your TreasuryDirect limit; they’ll count toward the recipient’s limit. That means you can purchase as much as you’d like for another individual or entity with an account, assuming you abide by the $25 minimum and $10,000 maximum transaction limits.
The bottom line
If you’re thinking of gifting stock to an individual or to charity, you’ll need a TreasuryDirect account to do so. In addition, you’ll need information like the recipient’s name, social security number, and TreasuryDirect account number. Plus, those who are planning to gift a minor with a savings bond will need to set up a minor-linked account on their behalf.
You can avoid taxes if you use the bonds for education costs, but you can only do so if you’re at least 24 years old.