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i bonds limit loophole

In a world where the stock market is unpredictable and interest rates are rising, many investors are looking for someplace to put their money that is as close to risk-free as possible — even if it means forgoing the chance for a bigger reward. One increasingly popular pick are I Bonds, savings bonds issued by the U.S. government. These bonds are virtually risk free and have a robust fixed interest rate. There is generally a $10,000 limit per year for purchasing I Bonds, but there are a few ways to get around this limit.

For more help working I bonds into your financial strategy, consider working with a financial advisor.

I Bonds Basics

I Bonds are issued by the federal government and carry a zero-coupon interest rate — plus, they are adjusted each year for inflation. The variable return will sit at 9.62% through October 2022.

Unlike other U.S. securities, these bonds are sold at face value — meaning if you purchase a $100 bond, the price will be $100. The bond duration runs from one year to 30 years.

Interest is paid on a monthly basis and compounds every six months. The following deadlines apply to I Bonds:

  • Within one year of purchase: You cannot cash the bond.
  • Within one year and five years of purchase: You can cash the bond but forfeit the previous three months’ interest payments. This is known as “early redemption.”
  • After five years of purchase: You can cash the bond with no penalty.
  • After 30 years of purchase: The bond ceases to pay interest.

You don’t have to cash the bond after 30 years, but it will start to lose value against inflation.

How to Get Around the $10,000 I Bond Limit

i bonds limit loophole

These bonds are popular, but there is a limit of $10,000 per year that an individual can purchase. That said, there are some loopholes you can exploit if you want to put even more money into these bonds to nab that healthy 9.62% yield:

Tax Refunds

If you are expecting to get a tax refund, you are able to purchase an additional $5,000 in I Bonds. There is one catch, though — they have to be paper I Bonds, not the more popular digital I Bonds. While this adds a bit of a rigamarole, you can eventually convert these paper bonds to digital.

Family Ties

The limit is per person — so if you’re married, 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, to save for college, perhaps.

Businesses and Trusts

Entities like businesses and trusts can also purchase up to $10,000 in I Bonds. This means that if you own a business and you have a living trust, you can purchase up to $30,000 in I Bonds each year.

The Bottom Line

i bonds limit loophole

I Bonds are a virtually risk-free investment, which makes them very popular in times of market uncertainty such as right now and as inflation devalues your cash. 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.

Investing Tips

  • For help using I Bonds as part of your strategy, consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Building a dividend stock portfolio is another way to use investments to create income.

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Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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