I have EE bonds that are in my name with my mother listed as co-owner. K gold “or “Z gold. I saw your December 2013 answer copying Bond Advisors info. My mother and I want to remove her name and replace it with my minor dependent son. That way he can cash 10 bonds a year for 10 years (they date from 1995) with little or no taxes as interest would be +~$500 and he is no income. Everything I read from treasury says the moment her name is removed she owes taxes on interest from 1995 to that date. Please advise. Thanks, Ken
Terry Says: According to Jackie Brahney of www.SavingsBonds.com, changing the name of a co-owner on a savings bond does NOT create a taxable event. However, if you were the single owner of a bond, and wanted to “gift” it to your son, there would be an income tax due on the accrued interest. Having co-ownership on a bond gives you a lot more flexibility. But changing the PRIMARY owner creates the taxable event.
You would have to sign form PDF 4000 (reissue form) which you can get at www.SavingsBonds.com requesting the change. The first name on the bond is considered the primary owner, and the second name is the co-owner. Both have to sign the form to have the name of the co-owner removed. Then you can request adding your son as either a beneficiary (who can only cash the bonds upon the death of the owner, or as a new CO-OWNER, with equal rights to the bonds. Adding a co-owner gives you the flexibility to make non taxable changes when changing co-owners. However, the changes must be made at least 12 months before the final maturity of the bond.
Any reissued bonds will be done in electronic form. So, the owner (you, Ken) need to set up an electronic account at www.TreasuryDirect.gov (click on “individual” and follow the links).
Even if your son is the one to cash the bonds in the future, the interest will be reported by TreasuryDirect under YOUR (Ken’s) Social Security number! So even if your minor son “cashes” the bonds in, the income won’t go on his tax return at his presumably lower rate.
Now, if you die, a whole new set of issues comes into play. If your co-owner is a minor at the time of your death, the courts may be in control of how the bonds are handled. And even if your son has reached legal age, your estate will have some tax decisions to make. The bonds can be transferred to the co-owner who does not have to cash them in until they reach final maturity, and then will report ALL the interest on his tax return. OR, your executor can elect to file the accrued interest on your final tax return. For more details on that issue, this is an excellent article on the subject at Bankrate.com; http://www.bankrate.com/finance/savings/paying-taxes-savings-bond-interest.aspx.