Series I Bonds: This Little-Known Secret Lets You Buy More Than The Annual Limit | Bankrate (2024)

Series I bonds are a tempting proposition for investors looking for protection against inflation. The government bonds currently pay a solid 5.27 percent yield. And that figure is adjusted to inflation so if prices rise still further, investors can earn a higher rate than even what they get now. Not surprisingly, this inflation protection has made Series I bonds attractive to savvy investors.

“There is one place to hide from inflation – Series I bonds,” says Don Parker, a former chief risk officer and chief information officer at BOK Financial.

The key downside has been that individuals are limited to buying $10,000 in Series I bonds each year. But individual investors actually have a way around this limit, letting them double- or even triple-dip (or more) their investment in Series I bonds – but almost no one knows about it.

Here’s how to invest even more in Series I bonds and other unknown secrets of these bonds. (If you already know you want to purchase Series I bonds, here’s how to buy them.)

The secret to investing more in Series I bonds

Series I bonds can be a really attractive investment right now, but let’s quickly recap why, before showing you how you can buy more than the typical $10,000 annual limit.

The Series I bond currently pays 5.27 percent interest, and the rate adjusts semiannually in May and November. If inflation rises, the bond has a variable component that moves the bond’s yield higher. Of course, it works the other way, too, and the rate has fallen from 9.62 percent last year, as inflation slowed somewhat. On top of that, investors will only pay tax at the federal level and can legally sidestep state and local taxes on Series I bonds. And with the backing of the U.S. government, investors have as safe a way to invest as exists.

“The Series I bond is riskless,” says Parker. “There’s no principal risk here, regardless of where interest rates go.”

“And the rate never goes below zero,” he says. “There’s a rate cap on the downside and no rate cap on the upside, so your principal is perfectly protected against inflation.”

Normally, you’re limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds. So most investors think their annual investment tops out at $15,000 – one of the key I bond myths.

But that’s incorrect, and investors can actually invest tens of thousands more, say Parker and others.

“The $10,000 limit is per entity, not per person,” says Parker. “You can have as many entities as you want.”

That is, if you have a business, that business can also purchase Series I bonds up to the $10,000 annual limit. That works if you’re running a sole proprietorship or even a side hustle. It can also include other kinds of entities such as trusts or even limited liability companies (LLCs). An LLC is a popular way among landlords to legally organize a series of rental properties.

“In many states there are low-cost ways to set up an LLC,” says Parker. “And that LLC is a separate entity from you, even if you share its Social Security number and a bank account.”

For example, Parker outlines a way that you could open many LLCs for a nominal fee. Then you can go to TreasuryDirect – the site for buying government bonds directly – and open an account for the entity. Buy the maximum amount of $10,000 in each account and enjoy risk-free income.

Parker says it’s not even necessary to get a separate tax ID (known as an EIN) for each entity. But other experts disagree, and say that it’s important that the business is clearly separate from you as an individual.

A tax ID for the business is vital, says Morris Armstrong, a registered investment advisor at his own company in Cheshire, Connecticut. He says that the Treasury looks at these accounts by EIN, but that in principle there’s no issue with having multiple entities and maxing out each.

“There would be nothing preventing someone from creating multiple trusts and doing it, either, except for the cost,” says Armstrong.

Parker says that between opening the LLC and then setting up the account for the entity on TreasuryDirect and funding it, it should take less than 10 minutes total. He thinks the opportunity will be particularly interesting through 2024 or 2025.

Armstrong is a little less optimistic, but does say that it “could be a reasonably attractive deal after a year,” once you factor in the expenses of setting up everything.

Risks of buying multiple Series I bonds

Investors looking to use this method should keep good records that document any entities that they’re using to purchase Series I bonds. You’ll need to be organized and maintain account numbers for every entity that you’re using. And if you’re not setting up separate tax IDs for each business, even if you set up an LLC, you may be running a risk that the Treasury calls you on it.

Parker himself has used this approach to set up multiple LLCs and buy up to the $10,000 limit for each entity. His strategy was spotted by Treasury officials, who questioned how he had purchased so many Series I bonds in a single year and were suspicious that these LLCs did actually exist. Parker says he showed them the proper legal paperwork validating them.

If you’re looking to set up multiple LLCs, it can be worthwhile to look around at which state offers the lowest cost. Not all states charge the same amount, says Parker, who highlights Michigan as a state that charges relatively little to establish the legal entity. You’ll want to keep costs low, so you don’t eat away at your returns, but Parker says you can set one up for $50, if you look.

Of course, there are other issues with investing significant amounts of money into a single type of bond. While the Series I bond eliminates principal risk and inflation risk, investors must keep their money locked up for at least a year. You simply won’t be able to sell the bond before then. So if there’s any chance you’ll need the money before a year, the Series I bond is not for you.

And if you sell the bond within five years of purchasing it, you’ll have to pay a penalty of three months’ interest. However, if inflation calms down, that penalty will decline as well. Of course, if inflation does fall to more normal levels, it makes the Series I bonds much less attractive, too.

“I think that a lot is being made about the I bonds, which were not a significant instrument until inflation hit hard, and now people want to pile in,” says Armstrong.

Before you begin with this approach, it could be worthwhile to consult a financial advisor so that you have all the details ironed out and fully understand the risks.

Bottom line

Series I bonds are an attractive investment option right now. Investors looking to take advantage of their high yield should act soon, so they can capture the rate currently on offer. However, few investors expect inflation to suddenly come to a halt, giving you an extended period of high interest rates with a low-risk government bond.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.

Series I Bonds: This Little-Known Secret Lets You Buy More Than The Annual Limit | Bankrate (2024)

FAQs

Series I Bonds: This Little-Known Secret Lets You Buy More Than The Annual Limit | Bankrate? ›

Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds.

How to buy more than $10 000 in I bonds through this loophole? ›

That said, there is a $10,000 limit each year for purchasing them. There are a number of ways around this limit, though, including using your tax refund, having your spouse purchase bonds as well and using a separate legal entity like a trust.

Is there a limit to how many Series I bonds I can buy? ›

Is there a maximum amount I can buy? In a calendar year, one Social Security Number or one Employer Identification Number may buy: up to $10,000 in electronic I bonds, and. up to $5,000 in paper I bonds (with your tax refund)

Can I buy $10,000 I bond every year? ›

Can I buy I bonds every calendar year? Yes, you can purchase up to $10,000 in electronic I bonds each calendar year. You can also buy an additional $5,000 in paper I bonds using your federal tax return.

Can married couples buy $20,000 in I bonds? ›

The limit is per person, so if you're married then each spouse is allowed to purchase $10,000 in I bonds (plus the paper bonds if they have a tax return). You can also purchase up to $10,000 in I Bonds for your children, but they must be used for the child, possibly as a college savings tool.

Can I buy $100000 in I bonds? ›

A given Social Security Number or Employer Identification Number can buy up to these amounts in savings bonds each calendar year: $10,000 in electronic EE bonds. $10,000 in electronic I bonds. $5,000 in paper I bonds that you can buy when you file federal tax forms.

What is the loophole for series I bonds? ›

Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds. So most investors think their annual investment tops out at $15,000 – one of the key I bond myths.

What is the downside of an I bond? ›

Key Points. Pros: I bonds come with a high interest rate during inflationary periods, they're low-risk, and they help protect against inflation. Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest.

Do you pay taxes on I bonds? ›

Interest on I bonds is exempt from state and local taxes but taxed at the federal level at ordinary income-tax rates.

Is there anything better than I bonds? ›

Note that I bonds must be held for at least 12 months before they can be sold. If you hold them for less than five years, you will forfeit three months of interest. You can buy more in TIPS, and their liquidity is an attractive option for some investors. Plus, TIPS pay a fixed interest rate semiannually.

What will the May 2024 I bond rate be? ›

May 1, 2024. Series EE savings bonds issued May 2024 through October 2024 will earn an annual fixed rate of 2.70% and Series I savings bonds will earn a composite rate of 4.28%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond's 20-year original maturity.

How long should you keep money in an I bond? ›

You'll likely want to time your cash-out for three months after your I-Bond's reset date so that the three months' interest you lose are of the new lower rate, not the higher rate you were happier with. To accomplish that, you should hold your I-Bond for at least 15 months.

How much is a $100 savings bond worth after 20 years? ›

How to get the most value from your savings bonds
Face ValuePurchase Amount20-Year Value (Purchased May 2000)
$50 Bond$100$109.52
$100 Bond$200$219.04
$500 Bond$400$547.60
$1,000 Bond$800$1,095.20

Are I bonds worth the hassle? ›

I bonds can be a safe immediate-term savings vehicle, especially in inflationary times. I bonds offer benefits such as the security of being backed by the full faith and credit of the U.S. government, state and local tax-exemptions and federal tax exemptions when used to fund educational expenses.

Are series I bonds a good investment right now? ›

The annual rate for Series I bonds could fall below 5% in May based on inflation and other factors, financial experts say. That would be lower than the current 5.27% interest on I bond purchases made before May 1, but higher than the 4.3% interest offered on new I bonds bought between May 1, 2023, and Oct. 31, 2023.

What day of the month do I bonds pay interest? ›

The interest gets added to the bond's value

I bonds earn interest from the first day of the month you buy them. Twice a year, we add all the interest the bond earned in the previous 6 months to the main (principal) value of the bond. That gives the bond a new value (old value + interest earned).

Can you gift more than 10000 in I bonds? ›

But this cap is per recipient. That means you can buy $10,000 worth of electronic I bonds for yourself and an additional $10,000 for another person. The only way to gift paper I bonds is to purchase them with your tax refund. You can buy up to $5,000 in I bonds per recipient this way.

What is the 10k limit on TreasuryDirect? ›

You can only buy $10,000 worth of EE Bonds per person (individual or entity) each calendar year through TreasuryDirect. The purchase limitation for EE Bonds isn't affected by purchases of any other Treasury securities.

How much is a $100 savings bond worth after 30 years? ›

How to get the most value from your savings bonds
Face ValuePurchase Amount30-Year Value (Purchased May 1990)
$50 Bond$100$207.36
$100 Bond$200$414.72
$500 Bond$400$1,036.80
$1,000 Bond$800$2,073.60

How do I report I bonds on my tax return? ›

How do you report interest on your tax return? The interest on your I bond falls on the same line as other interest income whether you choose to report it every year or all at once at the end of your ownership. Interest the bond earns is reported on a 1099-INT after the bond is cashed or reissued.

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