Gifting savings bonds for children
Both my younger brother and sister have newborns. Both of
my siblings are financially irresponsible. I'd like to purchase savings bonds
for their childrens' birthday and Christmas gifts. However, I do not want my siblings
to have access to the bonds and possibly cash them.
Do I buy
the bonds in my name with the newborns as a co-owners or the other way around?
Do the newborns' parents have any legal right to the bonds? Should I keep the
bonds in my possession? Also, I'd rather not be responsible for the federal income
tax of these bonds.
-- Cautious Kevin
By not being purchased in the parents' names, your nieces and nephews
may lose one of the biggest tax advantages of owning savings bonds,
namely the Savings Bonds for Education program.
There are income restrictions on whether the parents
qualify for this program, but if they do, the interest income is
free of federal income taxes when redemption proceeds are used for
qualified educational expenses. The education program is explained
on the TreasuryDirect
Since that's not going to work for you, I'll give
you another option. You can buy the bonds in just the children's
names and just not give the bonds to the children until they're
You can do this by opening a TreasuryDirect account
in your name and buying bonds for the children and holding them
in the gift box area of your account. I checked with a representative
at TreasuryDirect who assured me that the bonds can remain in the
gift box until your nieces and nephews reach the age of majority.
Since savings bonds are free of state and local taxation,
and the federal income taxes due can be postponed until the bonds are redeemed
or mature, holding the bonds in the gift box can work. Talk to a TreasuryDirect
representative if you're uncertain about how to make these purchases for the children
in your account.
I think a better approach would be to fund Section
529 qualified tuition plan accounts using your name as the account
holder and the children's as the account beneficiaries. Account
maintenance fees, investment management fees and investment choices
will influence where you might want to establish these accounts.
has a lot of information on choosing a plan that meets your needs
in this area.
To ask a question of Dr. Don, go to the "Ask
the Experts" page and select one of these topics: "financing
a home," "saving & investing" or "money."