Savings Bonds That Name a Minor as Co-Owner
Though a minor can’t buy a bond, that doesn’t mean a child can’t own any. Anyone can give a gift bond to a minor. Additionally, an adult custodian such as a parent can buy bonds in the name of a child. This includes naming a minor as a co-owner of the bond.
A Taxing Matter
Since interest on U.S. savings bonds is taxable when bonds are redeemed, determination of who will pay the taxes is worth some advance consideration, including, perhaps, a consultation with a tax professional. As explained by Savings Bond Advisor, when a bond is redeemed by a co-owner, the IRS taxes the person who originally contributed the money to buy the bond. This means that a parent who buys a bond and lists a son or daughter as a co-owner will owe taxes on the interest if the child someday redeems the bond, even if the parent doesn’t receive any proceeds.
You can buy bonds naming a minor as a co-owner in two ways. Purchase paper Series I bonds by using part or all of your income tax refund. Fill out IRS form 8888, list the minor as a co-owner, and include the form with your tax return. To name a child as co-owner on electronic Series I or EE bonds, the child’s custodian establishes a primary online savings bond account for himself on the government’s TreasuryDirect website, and then opens one for the child. The two accounts will be linked. Through the primary account, the custodian purchases the savings bonds.
Using Bonds for Education
If owners redeem a bond to pay for educational expenses, they might be able to avoid paying federal income tax on the bond’s earned interest, but a minor cannot be the owner or co-owner of a bond that will be used for higher education. Parents may only list the child as a beneficiary on bonds intended to go toward college expenses. That’s not to say the parents can’t use the redeemed bond for a child’s education -- they may -- but the potential education tax exclusion applies to the parents.
Redeeming a Bond as a Minor
Minors can’t conduct online bond transactions, so the non-minor co-owner must cash the bond through a TreasuryDirect online account. Cash paper bonds at banks. A minor’s custodian -- typically the parent -- can redeem the bond if the child is too young to understand the procedure or sign the bond. The bank makes the judgment on this. Otherwise, the minor can redeem the bond. Expect the bank to need ample identification. Even then, the bank doesn’t have to help. If that happens, send the bond to the Federal Reserve after having a bank certify the needed signatures.
- IRS: Now You Can Buy U.S. Series I Savings Bonds for Anyone With Your Tax Refund
- TreasuryDirect: Buying I Bonds
- CUNA Mutual Group: Custodial Accounts - The General Rules
- Treasury Direct: Education Planning
- Savings Bond Advisor: Who Pays the Taxes
- IRS: Investment Income and Expenses
- IRS: Using Your Income Tax Refund to Save by Buying U.S. Savings Bonds
- TreasuryDirect: Redeeming Bonds Under Special Circumstances
- TreasuryDirect: The Guide to Cashing Savings Bonds
Sophie Johnson is a freelance writer and editor of both print and film media. A freelancer for more than 20 years, Johnson has had the opportunity to cover topics ranging from construction to music to celebrity interviews.