Questions about buying savings bonds for gifts

[dcfromva]

Let me start by saying that I'm not financially savvy at all. I have 4 children in my family that I don't live close to so I don't really know what toys they have or what they need and I was thinking about buying them savings bonds for Christmas next year. How difficult is this to do? I did some research online and it looks like I would want to buy EE bonds. Do I buy them and then transfer them to my name or can I put them in the children's names when I buy them? Is this a good way to help them save for the future? I don't think any of their parents have savings for them. Can I just buy them at a local bank? Would I need to have an account with them? I'm just lost here

mrsbornkuntry,

Several good points have already been brought up on this issue.
Here's another consideration about which name to put on the bond: the threshold for getting tax free earnings on the bonds if they are in the parents name and used for a qualified college expense is relatively low compared with some other ways to save for college. If it turns out you are really financially sucessful, you may no longer meet the income threshold for tax free earnings for college expense. A lot can change over the years--especially if you are thinking of holding them for 10-20 years. Instead of cashing in the bonds and being taxed at the child's rate had they been issued in the child's name, you may have to pay federal taxes on the earnings at the parent's rate (if your income goes above the threshold) if the bonds had been issued in the parent's name.
link to info on savings bonds used for college

I, too, know of instances where the bonds were cashed in prematurely by the parents even though the bonds were in the child's name and the money was not used for its intended purpose. A possible solution to this problem would be to purchase the bond in the child's name and SSN on the bond and use your address where it will be mailed to you and you could hold it for safe keeping. (A determined parent could still cash the child's bond in by ordering a replacement bond, but that would take some time and effort).

You most definately don't want to put the bond in your name, because you will be subject to federal taxes on the earnings when it is cashed in.

Whether or not Savings Bonds are considered a good savings vehicle--well, at least you are saving something. Savings bonds have always been an affordable way to save money for the future in small increments. link to treasury direct.gov

In regards to your question about how to buy them, here is an exerpt from the website:
"If you're buying a paper savings bond as a gift, visit your financial institution and fill out a purchase application to order the bond. If you don't know the Social Security Number (SSN) of the person you're buying the bond for, simply use your number. Even though your SSN will appear on the bond, you'll incur no tax liability, and it won't count towards your annual purchase limit. With respect to paper savings bonds, SSNs are used for tracking purposes only, such as in cases where the savings bond is lost, stolen, or destroyed. When the recipient cashes the bond, they'll supply their SSN for tax purposes.
For paper savings bonds gifts, you'll need to plan ahead. Allow three weeks for your gift bond to be delivered to you, and you'll have it in time to give to the person yourself. However, even if you wait until the last minute, just ask your bank to send the bond directly to the person. Then ask your bank for a gift certificate to include in a card or to give in person or you can download and print one from our site"



HTH,
DC

 

[mrsbornkuntry]

In regards to your question about how to buy them, here is an exerpt from the website:
"If you're buying a paper savings bond as a gift, visit your financial institution and fill out a purchase application to order the bond. If you don't know the Social Security Number (SSN) of the person you're buying the bond for, simply use your number. Even though your SSN will appear on the bond, you'll incur no tax liability, and it won't count towards your annual purchase limit. With respect to paper savings bonds, SSNs are used for tracking purposes only, such as in cases where the savings bond is lost, stolen, or destroyed. When the recipient cashes the bond, they'll supply their SSN for tax purposes.
For paper savings bonds gifts, you'll need to plan ahead. Allow three weeks for your gift bond to be delivered to you, and you'll have it in time to give to the person yourself. However, even if you wait until the last minute, just ask your bank to send the bond directly to the person. Then ask your bank for a gift certificate to include in a card or to give in person or you can download and print one from our site"



HTH,
DC

So if I'm reading this right, if I were to buy a bond for the child and put their name, but MY ssn number on it, would the parent still be able to order a replacement one? They don't know my ssn.

I really appreciate all of the information I've gotten! I'm going to have to give this alot of consideration. As far as giving it as a gift I think it is the way I want to go. Although I understand that they aren't the best investment, I'm of the opinion that something is better than nothing. It's sad to have to think about it, but my biggest concern right now is whether or not I can do this so their parents can't cash it. If they found out that I had a savings acct. in their children's name they would hound me for access to it. They really are that bad.

 

[java]

Wait a minute- so they don't need the paper bond to cash it in- just there social security number? I ask because I can't find one of my children's bonds. My SIL does this for my kids and while it is very sweet and thoughtful- My children's money is in a mutual fund(I was a stock broker before I had children) where they are getting a much better return than they are getting on these series EE bonds. Maybe, not to be offensive though, I will cash them in and put the money in their mutual funds.

 

[can'twait]

I've read that bonds are a terrible investment so I attempted to cash in my DD's. Well, some of them I was able to cash and some I weren't. It depends on how they buyer fills out the form when they buy them. I've bought them too, and was told at the bank to put my SS # on it but I don't know what will happen when the recipient cashes it. I noticed there were several options on the form and it could be easy to misunderstand it and check the wrong box.

I would be afraid to lose the bonds. You can register them with the Fed online, I think, but good luck remembering the log in info in 20 years. If you don't register them and they are lost or stolen or destroyed they are GONE!

Personally, a better bet is a 529 plan in your name with the kids as beneficiaries. You can put as much as you want into it over time and the parents can't touch it, cash it or lose it. I'm not sure how taxes work though.

 

[jennifer293]

When we moved to our new house, MIL came over to help pack and we had our bonds locked up in a huge fireproof gun safe. Well to make it lighter DH took all the guns out and MIL took all the paperwork out of it (bonds, car titles, birth certificates pretty much all the important stuff) and she put it in a bag and on the back of the truck...WTH was she thinking????? Well I guess it blew off because we have been here for almost 4 years and have yet to find it. I was working with my dad that night so I had no clue she was even helping DH move.

Anyway I had to get replacements for everything...As far as the bonds went I had to write a letter to the U.S Treasury and give them my social, dh's social, and dd's social and I had to tell them exactly when the bonds were purchased (month/year) Luckily she was only 2 when this happened so only 2 year span to search in. I had to sign a date it to give them permission to perform the search. It took 6 months to get the replacements.

SO although you can get a replacement it takes FOREVER and it is a long tedious process!!!!

 

[dcfromva]

So if I'm reading this right, if I were to buy a bond for the child and put their name, but MY ssn number on it, would the parent still be able to order a replacement one? They don't know my ssn.

While you can do it that way, I don't like the idea of using my SSN on a gift bond. (I just don't like the idea of handing the bond over to the gift recipient with my SSN on it. ) But, if you did put your SSN on it, yes, I would say it would make it very, very difficult for the parent to order a replacement (I think it would deter most folks just using the child's SSN on the bond because there is paperwork to fill out, most people don't know the process for ordering a replacement bond and then it takes time to process the paperwork).

-DC

 

[dcfromva]

Wait a minute- so they don't need the paper bond to cash it in- just there social security number? I ask because I can't find one of my children's bonds. My SIL does this for my kids and while it is very sweet and thoughtful- My children's money is in a mutual fund(I was a stock broker before I had children) where they are getting a much better return than they are getting on these series EE bonds. Maybe, not to be offensive though, I will cash them in and put the money in their mutual funds.

Java,
"If Your Bond is Lost or Destroyed After You Receive It:

Even though many bond owners are careful, accidents still happen! For example, bonds are sometimes accidentally thrown away after owners have taken them out to count them. Unfortunately, bonds are also lost or destroyed as a result of fires, floods, and thefts.

To get your bond replaced, complete Form PD F 1048. On this form, provide the approximate issue date along with the complete names, addresses, social security number that appeared on the bond, and the bond serial number. If you don't know the serial number or denomination, just write "unknown" in the space provided. If the bond owner is a minor, the form should be signed by both parents and the minor's age and social security number should be included. Mail the completed form to: Bureau of the Public Debt, Parkersburg, WV 26106-7012. Replacement bonds will show the original issue date. "
Here is a link to the web site
Lost, Stolen, or Destroyed Bonds

HTH,
DC

 

[java]

Java,
"If Your Bond is Lost or Destroyed After You Receive It:

Even though many bond owners are careful, accidents still happen! For example, bonds are sometimes accidentally thrown away after owners have taken them out to count them. Unfortunately, bonds are also lost or destroyed as a result of fires, floods, and thefts.

To get your bond replaced, complete Form PD F 1048. On this form, provide the approximate issue date along with the complete names, addresses, social security number that appeared on the bond, and the bond serial number. If you don't know the serial number or denomination, just write "unknown" in the space provided. If the bond owner is a minor, the form should be signed by both parents and the minor's age and social security number should be included. Mail the completed form to: Bureau of the Public Debt, Parkersburg, WV 26106-7012. Replacement bonds will show the original issue date. "
Here is a link to the web site
Lost, Stolen, or Destroyed Bonds

HTH,
DC

THANK YOU!!

 

[dcfromva]

I would be afraid to lose the bonds. You can register them with the Fed online, I think, but good luck remembering the log in info in 20 years. If you don't register them and they are lost or stolen or destroyed they are GONE!

Personally, a better bet is a 529 plan in your name with the kids as beneficiaries. You can put as much as you want into it over time and the parents can't touch it, cash it or lose it. I'm not sure how taxes work though.

can'twait,
See the above procedure for replacing bonds --you don't have to register them to replace them, although now you do have an option to purchase them electronically.

I agree with you on the 529 plan for college savings (I almost made the same suggestion. ) --it solves so many problems with the transfer of assets while allowing the purchaser to retain control (and you make sure they are being used for college!). I bet I could list a zillion benefits to the 529 plan, but in the case of the OP, I'm not sure how much $$ they were planning to transfer--sometimes there are fees and expenses associated with the account with smaller balances. Also, there could be some negative tax consequences should the beneficiary decide not to attend college (though, most plans allow the assets could be transferred over to a sib to be used for college). While brainstorming for ideas for next Christmas, this would be a really good one for the OP to look at--just to see what is offered for their state--some states have matches for contributions under certain conditions. Some states give a tax deduction for contributions (that is where the negative tax consequences might come into play in the case of the beneficiary electing not to attend college and not being able to transfer the funds to someone else)...

-DC