At 70, He Plans to Buy I Bonds for Each of His Four Grandchildren

Buying I bonds for grandchildren may seem simple, but the name on the bond can affect taxes, purchase limits, and even Medicare premiums years down the road.

Harold is 70, has four grandchildren, and no longer wants to spend money on toys that end up in a donation pile by spring. Instead, he wants each grandchild to receive something that can keep growing until college or a first apartment. His plan is to buy Series I savings bonds through TreasuryDirect and register a separate set for each child.

Many grandparents are considering the same approach, and the current rate environment makes the strategy more interesting. Treasury recently reset I bond rates, and the new figures come with trade-offs buyers should understand before acting.

Why the 1.40% Fixed Rate Matters Most

I bonds issued in the current rate period pay 5.51%. That return has two parts. The fixed rate, 1.40%, remains attached to the bond for its entire life. The inflation component changes every six months, so the overall yield can move up or down over time.

The fixed rate is the key detail to watch. Bonds issued in the previous rate period carried a fixed rate of just 0.9%, so these bonds start from a better baseline. For comparison, the average 12-month bank CD pays 1.76%. Interest compounds twice a year, and the bond can keep earning for 30 years. A grandchild can redeem it after 12 months, though cashing in before five years means giving up the last three months of interest.

Each Grandchild Gets a Separate $10,000 Annual Limit

Purchase limits are tied to the bond owner’s Social Security number. Each person can buy up to $10,000 in electronic I bonds per calendar year, and gift bonds count toward the recipient’s limit. That means Harold can set aside $10,000 of room for each of his four grandchildren every year while keeping his own buying capacity available.

Paper bonds are no longer available. I bonds are sold only electronically, which means the old option of receiving paper bonds from a tax refund is gone. Gift tax should not be a problem, either. The annual gift exclusion is $19,000 per person, and a gift of a few thousand dollars per grandchild stays well below that threshold.

Why Registering the Bond in the Child’s Name Usually Helps

Who owns the bond matters because it determines the tax treatment. Federal rules allow some families to avoid tax on bond interest used for higher education, but the owner must be at least 24 years old when the bond is issued. That makes this exclusion unavailable for a bond registered in a child’s name.

For most grandparents, putting the bond in the grandchild’s name is still the better move. If the bond is registered only to the child, the interest belongs to the child for tax purposes even if the grandparent paid for it, and it is generally taxed when the bond is cashed in. A teenager with little other income would usually owe very little. The interest also stays off Harold’s tax return, which helps avoid Medicare premium surcharges that begin above $109,000 for single filers. State and local taxes do not apply.

Keeping the bond in Harold’s own name is less attractive. He would have to pay qualifying education expenses himself in the year he redeems the bonds, the tax break phases out at higher incomes, and the purchases would use his own annual limit.

What a $5,000 Gift Could Be Worth by Age 18

Suppose Harold’s youngest grandchild is 2 and receives a $5,000 bond that remains untouched for 16 years. If the 5.51% rate stayed in place that entire time, the bond would grow to about $11,900. A more conservative estimate uses the 1.40% fixed rate and assumes inflation averages 2.5% annually, which would put the value near $9,300. Extending that plan to all four grandchildren would cost $20,000.

Use the Gift Box and Deliver Later

One useful feature is that a gift bond can sit in a special “gift box” inside Harold’s account until he sends it. The gift counts toward the recipient’s limit in the year it is delivered, and it must remain in the gift box for at least five business days before transfer.

That gives him flexibility. He can buy now to lock in the 1.40% fixed rate, then deliver the bonds at Christmas or on a birthday later on. To complete delivery, he needs each child’s full name, Social Security number, and TreasuryDirect account number. Children under 18 can have an account opened by a parent or another adult custodian through a linked account setup.

It is best not to leave gifts sitting in the box without a plan. Undelivered bonds are easy to forget, so setting a delivery date for each one can help.

Set Up the Accounts Before the Holidays

Harold should begin by opening his own TreasuryDirect account. After that, he can ask each child’s parents to open an account and a linked account for every grandchild. Once those accounts are in place, each purchase takes only a few minutes, and the 1.40% fixed rate stays with the bonds permanently.