How to buy more than $10,000 in nearly risk-free I bonds this year

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I bonds have surged in popularity as riskier assets slip.

The bonds are backed by the federal government, the principal doesn’t 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 9.62% annual rate through October, the U.S. Department of Treasury announced in May. This rate changes every six months.

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

Generally, the limit that a person can put into I bonds is $10,000 annually through Treasury Direct. But for those who want to sock away more than that, there are a few strategies available.

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“These have turned out to be incredible investments during all the downturns that happened,” Orman said, in reference to the 2008 recession, 2018 market downturn and the pandemic recession.

Here’s what to know:

Tax refunds

In addition to purchasing $10,000 in I bonds for yourself, people who expect to get a federal tax refund can elect to get up to $5,000 in paper I bonds.

While receiving a paper bond is a bit of a hassle, it is possible to switch them to a digital version.

“Once you receive the paper I bond, you can actually convert your paper I bonds into electronic I bonds through Treasury Direct,” said Ken Tumin, founder and editor of DepositAccounts.com.  

Most people looking to purchase I bonds this year won’t be able to take advantage of this option, however. To receive a refund in paper I bonds, you had to have sent in an IRS Form 8888 with your tax return.

Married couples and children

The limit for purchasing I bonds is per person, so a married couple can each put up to $10,000 in the investment annually, or up to $15,000 each if they both also elect to get tax refunds in paper I bonds.

Families with kids can also invest up to the annual limit on behalf of each child. To do so, the parent has to create a Treasury Direct custodial account for the child and then make the purchase.

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

A business or trust

People who run businesses or have a living trust can also extend the I bond purchasing limit by buying the assets on behalf of the entity.

“There are several entities that are allowed to buy I bonds,” said John Scherer, a CFP and founder of Trinity Financial Planning in Madison, Wisconsin, including LLCs, corporations and sole proprietorships.

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

So, a married couple, each of whom own a business and have living trusts, could buy up to $60,000 in I bonds annually, as well as buying $5,000 per person in paper bonds, bringing their yearly total to $70,000. If that couple had two children, they could purchase an additional $20,000 of I bonds on their behalf.

The administrative side

Jose A. Bernat Bacete | Moment | Getty Images

To be sure, purchasing I bonds for so many different people and entities can become complicated. Each person or entity that you purchase I bonds for will need to have a Treasury Direct account — they can’t be combined — so you’ll have to make sure to keep each login and password safe.

Depending on when you buy I bonds, you’ll also have to keep track of when you’re able to access the money. You can’t take funds out of I bonds for one year, and if you touch the money before five years, you’ll miss out on the last three months of interest that accumulated on your principle just before the sale.

In addition, many people may not want to or be able to put tens of thousands of dollars into I bonds, which they cannot touch for one year. Generally, I bonds make sense as part of one’s emergency fund, according to Flis.

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

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

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