Wealthion on Series I Treasury Bonds

[Milton Kuo]

Wealthion has published a video on what appears to be a loophole around the $10,000/year annual purchase limit for I bonds. It involves using the "Gift Box" feature of the Treasury Direct web site to purchase additional bonds through family members, trusted friends, trusts, or business entities. I'm looking into the details of this but was wondering if anyone had any experience with this or might be able to offer another set of eyes to add any additional commentary.

For those who are unaware, I bonds are issued by the United States Treasury (the bonds cannot default) and are currently yielding about 9.62% per annum. The interest paid is recalculated every 6 months but it seems like a good chance that the interest rate is not going to be going down much in the future. Even though we're actually seeing far higher inflation, this might be a good place to park a bit of money and not lose as much purchasing power as a savings account or CD.

https://www.youtube.com/watch?v=nQUfCcXRNts

I'm looking to answer two questions I have that aren't made clear in the video:

1. If I have a business, could both I and the business each purchase $10,000 for ourselves and then each purchase another $10,000 to give to the other, thus giving the business and me $20,000 each of I bonds per year?

2. If such a transaction is not allowed and is not rejected by the Treasury Direct web site, what is the penalty? I'm assuming the worst case scenario will be that the money will be returned to the buyer without any interest.

[thriftyandboringinohio]

Thanks Milton. I was not aware of Series I bonds.

[Milton Kuo]

Thanks Milton. I was not aware of Series I bonds.

I'm glad this was helpful. Be aware that the I bonds are 30-year bonds that have some peculiar terms and conditions. Among them, you must hold the I bonds at least one year, you lose 3 months' interest if you sell them before 5 years, and the interest rate can change every six months. It's possible that you might want to hold I bonds for only one year so you'll forfeit 3 months' interest. However, that still comes out to an interest rate of over 7% for a guaranteed return that technically cannot default.

[thriftyandboringinohio]

I see why you mention the purchase limits. That caps the max income at $900 per year, woefully insufficient for a luxurious lifestyle.
They do allow $10K every year, so a younger person could accumulate a larger amount that might generate a meaningful income.

The ideas you mention are tantalizing, especially the possibility of corporate entities purchasing them, The imagination runs wild...

[Milton Kuo]

Well, I've done some digging and reading at the Treasury Direct web site and it indeed looks like a person can buy more than $10,000 worth of I bonds using family, trusted friends, trusts, and business entities. I believe than an individual person, by himself, can actually purchase $15,000 of I bonds per year: $10,000 through Treasury Direct (electronic I bonds) and another $5,000 as a tax refund (paper I bonds) by overpaying due income taxes during a given tax year. Here's the Treasury Direct page that I read that lead me to these conclusions:

https://www.treasurydirect.gov/indiv...bonds_ibuy.htm

Another thing I didn't mention is that the interest on I bonds compounds. If composite I bond rates stay high for a few years, the compounding will make a pretty big difference.

https://www.treasurydirect.gov/indiv...esandterms.htm

As the Wealthion video states, a person can purchase I bonds for another person or entity and interest starts accruing at the time of purchase. Even if the giftee (the person receiving the I bonds) cannot immediately receive the gifted I bonds, the I bonds will continue to accrue interest.

As far as I can tell, this means that a person who has a business entity can purchase $45,000 of I bonds per year.

1. $10,000 in electronic I bonds by the person
2. $5,000 in paper I bonds by the person
3. $10,000 in electronic I bonds by the business entity
4. $10,000 in electronic I bonds by the person to be gifted to the business entity
5. $10,000 in electornic I bonds by the business entity to be gifted to the person

It seems that controlling more business entities should allow a person to buy even more I bonds on a yearly basis. Tax returns could be something of a headache and one must keep in mind that receipt of gifted I bonds is capped at $10,000 per year which means that 10 entities gifting a mere $10,000 in I bonds each to a person will take the person 10 years to receive all of the I bonds.

[Milton Kuo]

I see why you mention the purchase limits. That caps the max income at $900 per year, woefully insufficient for a luxurious lifestyle.
They do allow $10K every year, so a younger person could accumulate a larger amount that might generate a meaningful income.

The ideas you mention are tantalizing, especially the possibility of corporate entities purchasing them, The imagination runs wild...

I read that when I bonds were first introduced in 1998, a person could purchase $60,000 of them per year. I believe that's 2x the median national individual income during that time. I haven't checked what the median income is today but I'm quite certain that it's not $5,000/year. Had the Treasury not changed the rules in the early 2000s, we would be able to purchase maybe $70,000 - $90,000 in I bonds per year if the limit were still 2x median national individual income.