How to Buy Over $10,000 in I Bonds Almost Risk-Free This Year

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I bonds have grown in popularity as riskier assets slip.

The bonds are guaranteed by the federal government, the principal does not lose value, and the bonds earn monthly interest through two parts, a fixed rate and a variable rate. Currently, the variable component will pay a record annual rate of 9.62% until October, the United States Treasury Department announced in May. This rate changes every six months.

“If you’re someone looking to get the highest possible return right now without risk and you don’t need that money for at least a year, this is an investment you should definitely make your priority. No. 1 on your list,” said personal finance expert Suze Orman.

Generally, the limit a person can place in I bonds is $10,000 per year via Direct cash. But for those who want to save more than that, there are a few strategies available.

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“These have proven to be amazing investments during all the downturns that have happened,” Orman said, referring to the 2008 recession, the 2018 market downturn and the pandemic recession.

Here’s what you need to know:

Tax refund

In addition to buying $10,000 in I bonds for yourself, people expecting a federal tax refund can choose to get up to $5,000 in paper I bonds.

Although receiving a paper deposit is a bit complicated, it is possible to upgrade them to a digital version.

“Once you’ve received the paper bond, you can actually convert your paper bonds to electronic bonds through Treasury Direct,” said Ken Tumin, founder and editor of DepositAccounts.com.

However, most people looking to buy I bonds this year will not be able to take advantage of this option. To receive a refund in the form of Paper I Bonds, you must have filed an IRS Form 8888 with your tax return.

Married couples and children

The I bond purchase limit is per person, so a married couple can each invest up to $10,000 per year in the investment, or up to $15,000 each if they all choose two also to get tax refunds in paper bonds I.

Families with children can also invest up to the annual limit on behalf of each child. To do this, the parent must create a Treasury Direct deposit account for the child and then make the purchase.

Of course, that money counts as a gift and should be used for the benefit of the child, said Christopher Flis, certified financial planner and founder of Resilient Asset Management in Memphis, Tennessee.

A company or a trust

Individuals who run businesses or have an inter vivos trust can also extend the I bond purchase limit by purchasing the assets on behalf of the entity.

“Multiple entities are permitted to purchase I Bonds,” said John Scherer, CFP and founder of Trinity Financial Planning in Madison, Wisconsin, including LLCs, corporations and sole proprietorships.

This means that even if you are self-employed and file taxes on an IRS Schedule C as a small business, you can purchase up to $10,000 of I Bonds per year for that business. This purchasing power also applies to living trusts, through which people can buy an additional $10,000 in I bonds per year.

So a married couple, each owning a business and having inter-vivos trusts, could buy up to $60,000 in I bonds per year, as well as buy $5,000 per person in paper bonds, bringing their annual total to 70 $000. If this couple had two children, they could purchase an additional $20,000 of I Bonds in their name.

The administrative side

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Admittedly, buying I bonds for so many different people and entities can get complicated. Each person or entity you are buying I Bonds for will need to have a Treasury Direct account – they cannot be combined – so you will need to be sure to keep each username and password safe.

Depending on when you buy I Bonds, you will also need to know when you will be able to access the money. You can’t withdraw funds from I bonds for a year, and if you hit the money before five years, you’ll miss the last three months of interest that accrued on your principle just before the sale.

Also, many people may be unwilling or unable to invest tens of thousands of dollars in I bonds, which they cannot touch for a year. Generally, I bonds make sense as part of his emergency fund, according to Flis.

He thinks of it this way: part of your emergency fund should be fully liquid, cash, ready to deploy. But, if you have extra funds beyond what you need in cash, it makes sense to put some of that money into I bonds to beat inflation with low risk.

“It’s for the next level of your emergency fund,” Flis said.

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