Hi,

I have a question about buying bonds for minor child.

Since there is yearly 30000 $ limit for an individual, once I exhaust that limit for me and my wife, I can not buy any more.

So if I buy another 30000 $ for my minor child and me as co-owner , when I cash the bonds after 6 months, I am liable for the
tax as I paid for the bonds. That means effectively I am buying 60000 $ of EE bonds on myself ( is that true ?. ) Am I allowed do it ?.

Thanks.

Each taxpayer can buy $30,000 face amount per year in U.S. Savings Bonds. If you buy for your child in his/her own name, using his/her SSN, you have no problem. Listing yourself as co-owner is not an impediment.

Bruce

Remember the limit is not $30,000. This is the maximum for Series I Bonds. You may also purchase another $15,000 in Series E Patriot Bonds.

This is probably a function of an over-expensive education, but I am struggling to understand why it would be different for a minor child or a major child. I speak as Christep Major, my younger brother having been Christep Minor.

As an aside, does anyone else who had a similarly spoilt upbringing remember how one deals with three siblings concurrently? This is really niggling me...

Christep Subminor?

I have bought bonds for my daughter using her SS# as co-owner with me, and visa versa. Have not cashed any in, but I don't see a problem with the age of the child. I believe the tax would be paid for by either your child (still minor, or now major) or you. No different when you get a gift bond that has the givers ss# - they wouldn't pay the tax, you would. Certainly a minor child's tax burden is probably less therefore less tax. I started doing this, thinking of it in case my daughter's college doesn't take credit cards, and if they do, I'll have it for retirement. So, unless the rates go up (some I bought were much higher than now), I won't cash them in for awhile.

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Ms.DtG

dgordon,

Not so loud! Once you buy bonds in your child's name, they belong to your child. You cannot use them for your retirement. One day your child could sue you for that money. In any case, you are calling into question the validity of the gift -- and therefore, the income!

Bruce

I do it that way. I have checked it out with the experts on the fairmark.com board. As I understand it, it is a gift when you cash it if and only if you deposit in the child's account. With you as co-owner, the purchase does not create a gift, since you control it. As a practical matter, if you pay taxes on it I can't imagine the authorities would get upset.

Wow, my 500th post!

That's not correct. If you use the child's name and SSN when you buy the bonds, then they belong to the child, and you made a gift (unless you used the child's funds to buy the bonds). Listing yourself as co-owner (or survivor) is irrelevant. When you cash the bonds, you better deposit the money in the child's account, or you're effectively stealing!

If you claim to be merely using the child's name and SSN to evade the $30,000 limit on bond purchases, well that speaks for itself, doesn't it?

Bruce

You seem to miss the point of co-ownership. The social security number does not limit ownership. There would be no category of co-ownership if it belonged to the owner of the ss#. They would then only allow singler ownership with a beneficiary. I am not worried. The one who sells the bonds - can be either one (I trust my daugher), and then pays the tax on the bonds, will then own the bonds. I don't think that the govt will be tracking how the funds got there 5, 10, or 15 years from now. They also need to be listed as co-owner if there is any chance that it would be used for educational expenses.

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Ms.DtG

In fact, when I bought bonds the first year and didn't realize there were limits, the govt called me and told me I bought too many in my nmae - and THEY suggested that they be redone with my daughter's SS# and were re-issued with the orginal re-issue date. If the bond was then perceived as her, I think the govt would have warned me about that. On their web-site, they clearly state that in co-ownership either party can cash in the bonds, not exclusively the owner of the SS#. It is no different then a joint checking account. It doesn't matter where the money is coming from - either party can use it.

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Ms.DtG

So, dgordon, I have a question for you.

Since that always unsettling call from the Feds, you obviously have continued to by bonds with you and your daughter as co-owners. Have you limited those purchases to the annual gift limits set by the IRS ($11,000 in 2002), or set by the treasury for EE & I bonds? Also, have you claimed either as a "gift" on your federal taxes, or is that not a taxable event until those bonds are redeemed?


Pate

That's a ridiculous theory. If you buy bonds in your daughter's name, they are hers -- period. You made a gift at the time of purchase, not when the bonds are cashed.

Let me give you an analogy that might help make this clear: If you buy 1000 shares of Microsoft in your daughter's name, have you made a gift? Do you have to wait until she sells those shares (which may NEVER happen, by the way) before you "made a gift"?

If you are co-owner of the bonds, the BEST argument that you can make is that you gave her HALF the value, but even that is weak if her SSN is used. Keep in mind that you CANNOT buy the bonds yourself because you reached the $30,000 limit. Only your daughter can buy the bonds. So she bought them, but they are really still yours? Come on!

The law in this area is clear as day. Anyone who wants to pretend otherwise is welcome to do so, however.

Bruce

I hope this helps. This is directly from the savingsbond website.

Purchase Limitation. You can purchase no more than $30,000 (face amount) in bonds in your name during any calendar year. Because we sell Series EE bonds for one-half their face value, this means you can spend no more than $15,000 on Series EE bonds registered in your name during any calendar year. The limit applies separately for bonds that you purchase in an individual capacity and for those you purchase in a fiduciary capacity. If you purchase bonds in coownership form, you can apply the purchase toward your limitation amount or that of that other coowner, or divide it between the two of you. The limitation doesn��t apply to bonds on which you name yourself as a beneficiary, as opposed to those on which you name yourself as an owner or coowner.

Buying bonds that are co-owned, are co-owned. They do not belong to either one exclusively. Ane when cashed in they do NOT belong to the SS# listed. When people give gifts, they can use their own SS#. Are THEY then liable for the tax? NO! When a parent sets up a college fund for a child, is that money considered a gift? When they pay $40K a year for college, is that subject to gift taxes? Or is that support? Why would bonds NEED to be listed as co-owned in order for them to be tax exempt if used for your child's education.

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Ms.DtG

Savings bonds have a special rule when the gift-giver does not know the SSN of the recipient. They permit the use of the giver's SSN, but that does not mean the bonds belong to the giver. It's just a special rule; don't try to make too much of it. When you cash savings bonds, the bank will ask for the SSN of the owner, so that they can issue a Form 1099 the next January. When they ask, you are expected to give them the correct SSN of the real owner. Actually, you can give them any SSN at all, but that doesn't make your representation the truth!

Similarly, the gift and estate tax laws have a special rule that applies to paying another person's (ANY other person's) educational expenses. Without this special rule, the payment of educational expenses exceeding $11,000 in 2002 would, in fact, be a potentially taxable gift (except for a spouse -- another special rule). Again, you are protected by a special rule applicable only to educational expenses; don't try to apply it generally.

The law governing gifts -- when a gift is made, how to value the gift (particularly difficult when applied to future or contingent interests) and various tax considerations -- is crystal clear to anybody who has worked in this area. This area of the law is not new and not murky. If you continue to be confused, see a professional. But don't speculate wildly that the law is what you would LIKE it to be.

Bruce