I would put it into the parent owed 529. Thanks for the explanation.
Agree with @mikemac. 529s allow for tax free growth as long as youâre funding education. And over a long 18 year horizon, chances are that markets will out perform i bonds.
Grandparent-owned 529s can be fine as long as you use that money to pay for the last two years of college (beyond the look back period for financial aid). You also have to consider your age. Is it likely that youâll be around in 18 years or is it likely that this 529 would be inherited? If the later, better to put in the Parent-owned 529. There was a recent thread about inherited 529s that might be of interest. They can complicate the financial aid picture.
Haha, unlikely I will be around then. Thanks. Will put into parent owned 529
Thanks for the heads up - I just purchased the max allowed from my Treasury Direct account, which was already linked to the money market I wanted to use for purchase. It was extremely easy.
Much much easier than when my brother and I had to convert my momâs bonds after she passed away (she had EE and I bonds)! That was a looooong process:
Step 1: Each of us need to establish a Treasure Direct Account:
Step 2: We need to fill out Form 1455 to distribute the bonds to us: On the form, we designate specifically which bonds are to go to which of us (assume we can figure out a 50/50 split).
Then we both need to sign in the presence of an âauthorized certifying officerâ, which I believe can be any bank officer per subpartJ
We need to include a certified death certificate and certified trust agreements showing us as the co-trustees.
Step 3: We also each need to fill out form FS-4000 to put the bonds weâre each getting into our own Treasury Direct Accounts. Signatures here also require a certifying officer.
Step 4: Mail it all together to the address on the form 4000 along with the bonds themselves.
I found this conversation in late 2015 with my brother on how long it would take; apparently there was one specialist for our exact situation:
Called the Treasury today and the rep said he would send a note over to the examiner to say that I inquired about the case. He didnât know nothinâ about no expediting. He did say (1) bonds in trust take longer and (2) the Treasury has a backlog of 30,000 cases. The guy last week said that examiners are specialists so I guess weâre in the line for the âtransfer from trust to individualâ person.
OkâŠcould someone clarify. Upstream someone said the interest Rate on these was 9%. Then someone more recently said itâs 0%. Which is it? That is a HUGE difference.
There are two components to the I series bond interest rate: the fixed rate which is zero and the inflation rate which is 4.81%. There is then a formula to compute the composite rate of 9.62%.
Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]
Both components are reset every 6 months. The fixed rate has been 0% or close to it for more than a dozen years.
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I was able to open an account in matter of minutes. The next coupon is over 9%. I only wished that I could buy more.
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Itâs a floor wax and a desert topping! (Always wanted to use that SNL line). And in fact both are, in a sense, right.
The TreasuryDirect FAQ says
How is the interest rate of an I bond determined?
The interest rate combines two separate rates:
- A fixed rate of return, which remains the same throughout the life of the I bond.
- A variable semiannual inflation rate based on changes in the Consumer Price Index for all Urban Consumers (CPI-U). The Bureau of the Fiscal Service announces the rates each May and November. The semiannual inflation rate announced in May is the change between the CPI-U figures from the preceding September and March; the inflation rate announced in November is the change between the CPI-U figures from the preceding March and September.
Because it combines two rates, the interest rate on an I bond sometimes is called the composite rate or the overall rate.
So itâs a bit confusing, but the bond fixed interest rate (sometimes called the coupon or dividend rate) really is 0%, meaning if inflation is 0% theyâll pay zilch. Itâs the second component thatâs giving the healthy return at present.
The thing to remember is that iBonds are just another investment tool. For their purpose, theyâre good, but not magic. When inflation is low, which it has been in recent history, theyâre no different than holding money in a coffee can. Given the current yield though and the OPs objective, theyâre a good option.
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To put it plainly, the fixed is 0% and the variable is the inflation rate. I bought it in April with the initial rate in the 7 and recently it was reset to over 9%. If I redeem early then I could loose 3 months of interest, but I would still be ahead. I also bought one for my mom.
does your state give you a tax deduction for a contribution to a 529? If so, then it might work better to put it into your name.
Itâs very small amount, Iâm not sure itâs worth my effort. That said I recently paid down my house because the interest rate is high in comparison to what I get from the fixed rate CDs, something Iâve always preached against.
I have no idea, the amount wouldnât be enough to matter
Thanks for the info, everyone. I opened a treasury account and made a purchase yesterday. It was easy.
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Update for anyone who ends up in this position: The Treasury Department randomly flags accounts for identity verification beyond what is asked for when you create your account on TreasuryDirect. I was such an unlucky person. Having to submit form 5444 for verification means thereâs a requirement for a signature guarantee or medallion guarantee - services my small bank did not offer. Notary Publics are not accepted. I had to open another bank account at a larger bank just to be able to get the signature guarantee. After faxing it to Treasury, I received a confirmation email telling me it could take up to 8 weeks to process. After 5 weeks my account was finally unlocked.
Your tax dollars at work.
And when my siblings and I inherited some bonds, I was able to get a medallion notary at my local bank. One of my siblings wasnât so fortunate: their bank wanted the lawyer (estate was not based in their state), and original will, etc. to confirm that they were entitled to the bonds. (Treasury Direct confirmed that all the institution was supposed to do was verify my siblingâs identity.) Suggested, they try at a local investment firm (somewhat snobbily). One such firm, having never met my sibling before, performed the service. Did I mention that the local bank had my siblingâs mortgage, and was charging them an exorbitant low loan balance fee very month?