Kiddie tax
Last year I purchased a $10,000 I bond for my 10 year old granddaughter. I was going to buy her a Treasury Bill this year but I have become concerned about federal income tax liability for unearned income. Is a municipal bond an alternative that would be federal tax free? She has a college 529 plan already and that is being funded by her parents.
Any guidance?
Terry Says
There is no income tax on an I-bond until it is cashed in! So don’t worry about that. Second, you can’t purchase a T-bill (or I-bond) directly in the name of the grandchild. Instead you must create a “gift box” in your own TreasuryDirect account.
BUT MOST IMPORTANT — These are NOT the best ways to save for your grandchild. Each will impact her eligibility for financial aid.
Instead, you should contribute to the 529 plan her parents opened for her OR, open another 529 plan with yourself as custodian, and make regular contributions.
Read this: https://www.terrysavage.com/529-plans-even-better-now-2/
