U.S. savings bonds are not directly transferable, but you can pass them to grandchildren through specific methods that involve reissuing the bonds in the grandchild’s name, naming them as a beneficiary, or making them a co-owner. About 61 million Americans own savings bonds worth $200 billion, yet most don’t understand the transfer rules, leading to costly mistakes that trigger unexpected taxes and probate delays. The federal government created strict rules about how bonds can change ownership because these are federal securities backed by Treasury authority, not simple property you can hand off like a used car.
What You’ll Learn
💡 The three ways to pass bonds to grandchildren (buying as gifts, naming them on existing bonds, or reissuing bonds you already own)
💰 Exactly how much you can give each year without filing paperwork or paying gift taxes
📋 Step-by-step procedures for each transfer method and every form you need to fill out
⚠️ The tax penalties you’ll face if you make common mistakes (losing 3 months of interest or paying taxes unexpectedly)
✅ Real-world scenarios showing exactly what happens to bonds after death and how to plan ahead
The Federal Law That Governs Savings Bonds
All U.S. savings bonds are controlled by federal law, not state law. The Treasury Department manages bonds under Title 31 of the Code of Federal Regulations, which means the rules are the same whether you live in California or Maine. States cannot change how bonds are transferred or taxed on interest—that power belongs only to the federal government. However, states do have their own inheritance and estate tax rules that can affect the total taxes your grandchildren pay after you die. Some states tax inherited property, while others don’t, and those differences matter when planning large gifts.
The core problem is this: savings bonds are registered securities with owner information tracked by the government by name and Social Security number. You cannot simply hand a bond to your grandchild the way you hand them cash. The government must officially record the new owner’s information before the transfer is complete. This protects your grandchildren because it proves they own the bonds in case of disputes or theft.
Understanding the Three Ownership Types
When you own a savings bond, it is registered in one of these three ways: as a single owner, as a co-owner, or with a beneficiary. Your choice determines whether your grandchild can access the bond during your lifetime and what happens to the bond after you die.
Single Owner Registration means only your name appears on the bond. You control it completely. Your grandchild has no rights to it while you’re alive. When you die, the bond becomes part of your estate and must go through probate unless it’s under $100,000 and you use a small estate process.
Co-Owner Registration means two names appear on the bond with the letters “OR” between them. Either owner can redeem the bond at any time. If you list your grandchild as co-owner, they can cash it in without your permission, even if they’re young. More importantly, when one co-owner dies the surviving owner becomes the sole owner automatically without probate. This makes co-ownership useful for avoiding court involvement after death.
Beneficiary Registration means your name appears on the bond, but you name another person to receive it after death. When you die the beneficiary becomes owner and can redeem it without going through probate. Your grandchild cannot touch the bond while you’re alive, and you keep full control. This is the safest option if your grandchild is young or not financially responsible.
How Much Can You Gift Each Year Without Tax Problems?
Federal gift tax rules let you give money away tax-free each year. For 2025, you can give up to $19,000 to each person without filing any paperwork or paying gift tax. If you’re married, you and your spouse can each give $19,000 to the same grandchild, meaning married couples can give $38,000 per grandchild per year without tax consequences.
The key word is per person. You can give $19,000 to one grandchild, $19,000 to another grandchild, $19,000 to your nephew, and $19,000 to your friend in the same year, and none of it triggers gift taxes. The $19,000 limit resets on January 1 each year.
If you give more than $19,000 to one person in a single year, you must file IRS Form 709 reporting excess. However, filing the form does not mean you pay taxes. Instead, the excess amount counts against your lifetime exemption. For 2025, you have a lifetime exemption of $13.99 million, meaning you can give away almost $14 million during your lifetime or at death before owing any gift or estate tax. Most people will never hit this limit.
The consequence of exceeding the annual limit is paperwork, not immediate tax bills. However, this exemption is set to expire December 31, 2025, and the lifetime exemption will drop to about $7 million per person in 2026 if Congress does not act. Planning ahead now helps you take advantage before the exemption shrinks.
Three Methods to Pass Bonds to Your Grandchildren
Method 1: Buy New Bonds as Gifts
This is the easiest way to give bonds to grandchildren. You buy bonds specifically as gift directly into their account from the start. The bonds are theirs from day one, and no tax transfer is needed later.
The process works like this: You open a TreasuryDirect account for gifts if you don’t have one. Then you log in, select “Buy Direct,” and choose “This is a Gift.” You enter your grandchild’s full name and Social Security number. The system creates the bond in their name. If your grandchild is under 18, you set up a linked account under your TreasuryDirect account that your grandchild can access once they turn 18.
Limits and restrictions apply. Each person can buy a maximum of $10,000 in Series EE bonds and $10,000 in Series I bonds per calendar year. This means you can gift $10,000 in EE bonds and $10,000 in I bonds to each grandchild each year. If you’re married, your spouse can gift another $10,000 in EE bonds and $10,000 in I bonds, giving each grandchild up to $40,000 in bonds per year ($20,000 from you, $20,000 from your spouse).
Tax consequences are minimal with this method. The grandchild owns the bonds, so they owe tax on the interest when they redeem the bonds. If your grandchild is a minor or a young adult with little other income, they may owe no tax at all on moderate bond interest because the first $1,300 of unearned income is tax-free for children in 2025, and the next $1,300 is taxed at their low rate instead of your high rate. This creates a significant tax advantage when you gift bonds to young people with little income.
| Your Action | Your Grandchild’s Consequence |
|---|---|
| Buy $10,000 EE bonds and $10,000 I bonds each year | They own bonds worth $20,000 that earn interest only they pay tax on |
| Set up linked account for grandchild under 18 | You control account until they turn 18, then they take full control |
Method 2: Add Your Grandchild as a Beneficiary on Existing Bonds
If you already own bonds and want to name your grandchild to receive them after you die, you can add a beneficiary without reissuing the bond. You use an online tool called SmartExchange or file Form FS 4000 to add a beneficiary to EE or I bonds.
SmartExchange is an online portal in your TreasuryDirect account that lets you make certain changes instantly without mailing paperwork. To add a beneficiary through SmartExchange, log in, click “ManageDirect,” select the bond, choose “Add or Remove Beneficiary,” and enter your grandchild’s name and Social Security number. The change takes effect immediately.
If SmartExchange won’t process your request (which happens for certain bond types or situations), you must complete Form FS 4000 by hand, have it certified at a bank, and mail it to the Treasury Department. This takes longer—usually 4 to 6 weeks. The certification requirement protects the Treasury from fraud by verifying your identity through a bank officer.
Important rule: Your grandchild cannot be a co-owner to take advantage of the education tax exclusion. If you want your grandchild to receive tax-free interest for college, they must be a beneficiary only, not a co-owner or owner. A co-owner’s interest is never tax-free for education. This matters when your grandchild is 10 years old and you’re buying bonds to pay for their college in 8 years.
Tax consequences at death: When you die, your grandchild becomes the owner of the bond. They do not pay gift taxes because they inherited the bond. However, they do owe federal income tax on all the interest the bond earned during your lifetime. If the bond earned $5,000 while you owned it, and earns another $2,000 after you die, your grandchild owes income tax on the full $7,000 when they redeem it. No estate tax applies unless your entire estate exceeds $13.99 million. Understanding this helps you plan for how to communicate with your grandchild about their future tax obligations.
| Your Action | Your Grandchild’s Consequence |
|---|---|
| Add grandchild as beneficiary on $50,000 bond | They inherit it at your death without probate |
Method 3: Reissue Existing Bonds in Your Grandchild’s Name
If you own bonds and want to transfer ownership right now (not after death), you must reissue the bond in your grandchild’s name. This involves filing Form FS 4000 and providing it to the Treasury Department.
When you reissue a bond, the Treasury cancels the old registration and issues a new one with your grandchild’s name. For electronic bonds (EE and I bonds), this means the bond moves into their TreasuryDirect account. For older paper bonds, the Treasury may issue a paper bond or electronic bond depending on the bond type and the age of the security.
Major tax consequence: The reissue triggers immediate income tax on all accrued interest you never reported. When you reissue bonds and remove your name, you must report all the interest earned on your grandchild’s behalf as income in the year of reissue. This is the biggest drawback to this method.
Example: You bought a $1,000 Series EE bond for $500 in 2010. It’s now worth $1,800. If you reissue it in your grandchild’s name, you owe income tax on the $1,300 in interest in the year you transfer it. Your grandchild owns the bond, but you paid the tax bill. This is why most people avoid reissuing bonds—the tax bill hits immediately instead of being deferred until redemption.
Special exception for trusts: If you transfer the bond to a revocable living trust that you control, you do not trigger the immediate tax as long as you kept the power to take the bond back. The tax defers until you die or actually cash the bond. However, once your grandchild receives the bond from the trust (which happens when the trust ends), they owe tax on the deferred interest. This strategy works well for people who want to pass bonds through their estate plan without triggering immediate tax.
| Your Action | Your Grandchild’s Consequence |
|---|---|
| Reissue $50,000 bond (purchased for $25,000) to grandchild | You owe income tax on $25,000 interest immediately, even though you don’t cash it |
| Grandchild is now the owner | Interest earned after reissue belongs to them tax-deferred |
What Happens to Bonds After You Die
Your death triggers different outcomes based on how the bond was registered. Understanding these scenarios helps you plan which ownership type makes sense for your family’s situation.
Scenario 1: Single Owner Bond (Only Your Name)
If only your name appears on the bond and you name no co-owner or beneficiary, the bond becomes part of your estate. If the bond is worth less than $100,000, your heirs can use a simple process: they complete Form FS 5336 and submit it to the Treasury without court involvement.
If the bond is worth more than $100,000 and your total estate exceeds $100,000, a court-appointed representative called executor or administrator must be involved. This means probate—the court process where a judge approves who gets your property. Probate takes months or even years and costs money in court fees and attorney bills. Your grandchild might wait 18 months to access the bonds while the court process finishes.
Scenario 2: Co-Owner Bond (Your Name + Grandchild’s Name)
When you die, your grandchild becomes the sole owner automatically. No probate is required, even if the bond is worth $500,000. Your grandchild simply submits a death certificate to the Treasury, and ownership transfers. This is called “right of survivorship,” and it’s the fastest way to pass bonds directly to your heir.
Downside: If your grandchild dies before you, they’re no longer listed, so the bond reverts to your estate. This creates a gap: you planned for the bond to go to your grandchild, but if they die first, it doesn’t work that way unless you update the registration. Planning ahead with backup plans prevents this problem.
Scenario 3: Beneficiary Bond (Your Name, with Grandchild Named as Beneficiary)
When you die, your grandchild becomes the owner automatically, and probate is bypassed. Unlike co-ownership, you kept sole control of the bond during your lifetime. Your grandchild couldn’t touch it or redeem it without your permission. This protects you from your grandchild making poor decisions with the money before you’re ready to pass it to them.
Advantage: You can name backup beneficiaries. If your primary beneficiary (your grandchild) dies before you, you can name a contingent beneficiary to receive the bond instead. This protects you if circumstances change. You retain flexibility throughout your life to adjust your plans as needed.
The Early Redemption Penalty and the 30-Year Maturity Rule
All Series EE and Series I savings bonds earn interest for 30 years. After 30 years, they stop earning interest permanently. This matters for planning how long you hold bonds before passing them to grandchildren.
Early redemption penalty: If you redeem a bond within the first 5 years, you lose the last 3 months of interest as a penalty. For example, if you own a bond for 18 months and redeem it, you get interest for only 15 months. The Treasury keeps the 3 months as a penalty. This penalty applies even if you’re redeeming to gift the money to your grandchild.
After 5 years, you can redeem with no penalty. However, bonds must be held for at least 1 year before any redemption is allowed. You cannot redeem in 6 months no matter the circumstances.
The maturity rule: Once a bond reaches 30 years old, it stops earning interest and cannot be transferred. If you try to reissue a mature bond, the Treasury will tell you it must be redeemed. You cannot hand off a 30-year-old bond to your grandchild as a gift because it no longer grows. Your only option is to cash it in and give your grandchild the money or buy new bonds with those funds.
| Bond Age | Your Option |
|---|---|
| 6 months to 5 years | Redeem it (lose 3 months interest) |
| 5 years to 30 years | Redeem it or hold it (no penalty) |
| 30 years or older | Must redeem it (cannot transfer) |
How Taxes Work When Grandchildren Inherit Bonds
Your grandchild does not pay gift tax on inherited bonds—federal gift tax only applies to gifts while you’re alive. However, they do pay income tax on the interest that accumulated.
Income tax on inherited interest: The bond accumulated interest over the years you owned it. When your grandchild redeems the bond, they owe federal income tax on all that interest, not just the interest earned after you died. This can be a surprise.
Example: You bought a $1,000 Series EE bond for $500 in 2005. When you died in 2024, it was worth $1,800 (earning $1,300 in interest). Your grandchild inherits it. If they redeem it immediately, they owe federal income tax on the $1,300 earned during your lifetime. Your grandchild did not earn that money, but they owe tax on it. However, they can choose to redeem it over multiple years, spreading the tax across several tax years to reduce their annual tax rate.
Exception for education: If your grandchild uses the inherited bond to pay for college tuition and fees at an eligible school, they may exclude part of the interest from income tax. This requires that the original bond was Series EE (issued after 1989) or Series I. The bond had to be registered in your name (as the parent or adult), not your grandchild’s name. Income limits apply—for 2025, single filers with income over $99,500 or married filers with income over $149,250 cannot use this exclusion. Your grandchild must check their income before redeeming to see if they qualify.
No state or local income tax: This is the only real tax break on savings bonds. Interest is exempt from state and local income taxes, even though it’s subject to federal tax. If you live in a high-tax state like California or New York, this exemption saves your grandchild significant money when they inherit the bonds.
Estate tax: Federal estate tax applies only if your entire estate exceeds $13.99 million (for 2025). Most grandchildren’s grandparents don’t have estates that large, so estate tax does not apply. However, some states have their own inheritance or estate taxes that apply at lower thresholds. New Jersey, for example, taxes inherited property for some beneficiaries. Kentucky and Pennsylvania also impose inheritance taxes on certain relationships.
Series EE vs. Series I Bonds: Which Should You Gift?
Series EE bonds earn a fixed interest rate set when you buy the bond. As of late 2024, Series EE bonds earn 2.70% annually. This rate never changes for the life of the bond. You know exactly how much your grandchild will earn each year.
Series I bonds earn an interest rate that changes every 6 months based on inflation. As of late 2024, Series I bonds earn 3.98% annually. If inflation rises, I bond rates rise. If inflation falls, rates fall. This means I bonds protect purchasing power when inflation spikes.
For gifting to grandchildren, I bonds are typically better if you expect inflation to stay high. EE bonds are better if you want certainty about returns and don’t want to worry about interest rate changes. Electronic EE bonds are sold at their full face value, while older paper EE bonds were sold at half price (you paid $25 for a $50 bond).
| Feature | Series EE | Series I |
|---|---|---|
| Interest rate | Fixed for life | Changes every 6 months |
| Current rate | 2.70% | 3.98% |
| Good for grandchildren? | Who like certainty | Who expect high inflation |
Real-World Scenarios and Outcomes
Scenario A: Your Grandchild is 8 Years Old, You Want to Fund College
Your goal is to give your grandchild enough bonds so they can pay for college when they turn 18. You have 10 years to grow the money. This is a classic wealth-building opportunity through tax-deferred growth.
Best strategy: Buy new Series I bonds as gifts each year up to the $10,000 annual limit. Put them in a linked account under your TreasuryDirect account. When your grandchild turns 18, they open their own TreasuryDirect account, and you transfer the bonds to them. This creates a predictable college fund.
Why this works: Bonds earn interest tax-deferred. Series I bonds adjust for inflation, so your money keeps up with rising college costs. When your grandchild cashes the bonds for college, they can use the education exclusion if you are under income limits, and part of the interest becomes tax-free. Your grandchild pays no income tax on the interest when used for qualified education expenses.
Tax outcome: Your grandchild pays no income tax on part of the interest if it goes to college expenses. Over 10 years of $10,000 annual gifts, you’ll build roughly $100,000-$120,000 in bonds for college, with much of the interest tax-free.
Scenario B: Your Grandchild is 15 Years Old, You Want to Give $30,000
Your grandchild is almost an adult. You want to gift $30,000 but stay under the annual gift tax limit. This requires strategic timing to avoid paperwork.
Best strategy: Gift $19,000 in bonds this year (within the annual exclusion) and wait until next year to gift $11,000 more. Or, if you’re married, you and your spouse each gift $15,000 this year (total $30,000) and stay under the annual limit for both of you. Married couples can split the gift to stay compliant with gift tax rules.
Why this works: You avoid having to file IRS Form 709 to report a gift over the $19,000 limit. This keeps things simple and requires no paperwork. No gift tax is owed, and no forms need filing with the IRS.
Tax outcome: No gift tax paperwork required. Your grandchild owns the bonds and pays income tax on interest when they redeem them. The $19,000 annual exclusion applies to each person, so proper planning saves you compliance headaches.
Scenario C: You Own $100,000 in Old Series EE Bonds, You’re 72, You Want Your Grandchild to Have Them After You Die
You bought these bonds 30 years ago. You never reported the interest income, so the Treasury has $50,000 of unreported accrued interest sitting in these bonds. This is a complex situation requiring careful planning.
Best strategy: Don’t reissue the bonds now. Instead, name your grandchild as a beneficiary on the bonds using SmartExchange or Form FS 4000. Keep them registered in your name until you die. This avoids immediate tax consequences.
Why this works: By naming a beneficiary, you avoid paying $50,000 in income tax right now. When you die, your grandchild inherits the bonds and the interest tax bill passes to them. They can then choose when to redeem the bonds—perhaps in a year when their income is low so their tax rate is lower. This flexibility is powerful and allows your grandchild to manage their tax situation.
Tax outcome: You owe zero tax now. Your grandchild faces income tax on the $50,000 interest when they cash the bonds, but they can choose the timing. If they redeem it in a low-income year, they’ll pay less tax. They might redeem half one year and half the next year to split the income across two tax years.
| Your Action | Tax Consequence |
|---|---|
| Reissue now to grandchild | You pay $50,000 tax bill immediately |
| Keep ownership, name beneficiary | No tax now, grandchild gets bill later |
Scenario D: You Die Owning $250,000 in Bonds, Single Owner, No Beneficiary
You owned bonds but never named a beneficiary or co-owner. Your grandchild is one of your heirs. This creates complications.
What happens: Because the bond is worth over $100,000 and your total estate exceeds $100,000, your bonds go through probate. Your executor (named in your will) handles the transfer. It takes 6 months to 2 years depending on your state. Your grandchild eventually gets the bonds, but legal fees reduce the value. During probate, bonds remain frozen and cannot be accessed.
Better plan: Update your bonds now to name your grandchild as a beneficiary (if they’re the sole heir) or name your grandchild as co-owner. When you die, the bond passes to them in weeks without probate costs. This simple step prevents months of delays and thousands in legal fees.
Pros and Cons of Different Transfer Methods
| Method | Pros |
|---|---|
| Buy new bonds as gifts | Easy, no reissuing, grandchild owns from start, no tax until redemption |
| Name as beneficiary | No probate, keeps your control during life, backup beneficiary option, defers reissue tax |
| Reissue in grandchild’s name | Grandchild owns it now, you’re not managing it anymore |
| Co-owner registration | Fastest pass-through at death, no probate, grandchild can help manage |
| Method | Cons |
|---|---|
| Buy new bonds as gifts | Limited to $10k EE + $10k I per year; requires TreasuryDirect account |
| Name as beneficiary | Grandchild inherits accrued interest tax bill; cannot use education exclusion if bond is in your name |
| Reissue in grandchild’s name | Immediate income tax on all accrued interest; costly for large bonds; older bonds may not be reissued |
| Co-owner registration | Grandchild can redeem without permission; loses right of survivorship if they die first; early redemption penalty applies |
Mistakes to Avoid
Mistake 1: Assuming bonds are like cash and can just be handed over
Bonds are registered federal securities. You cannot transfer them by mail or hand-off. The government must process the change officially. Trying to give someone a bond without following Treasury procedures means the bond still has your name on it, and the person holding it has no legal claim.
Consequence: Your grandchild might think they own the bond but have no way to prove it. If you die, the bond goes into probate as part of your estate, not to your grandchild. The Treasury won’t recognize your verbal instructions or informal arrangements.
Mistake 2: Not naming a beneficiary and letting probate eat up time and money
If you own significant bonds with no beneficiary named, your grandchild waits months or years for probate to finish. Meanwhile, court costs and attorney fees come out of the bond proceeds. Probate is a public process that takes time even in simple cases.
Consequence: Your grandchild receives less money because legal fees reduced it. The process could have been instant if you named them as a beneficiary. Additionally, probate records are public, exposing your estate details to anyone who wants to look them up.
Mistake 3: Adding your grandchild as a co-owner but planning to redeem early
You add your grandchild as a co-owner to make the bond faster to transfer at your death. But you own bonds purchased 2 years ago, and you need the money now. If you redeem within 5 years, you and your grandchild both lose the last 3 months of interest as a penalty.
Consequence: The 3-month penalty applies because your grandchild is now a co-owner. You both share in the penalty, even though they didn’t choose to redeem. This surprises people who didn’t expect the penalty to apply to co-owners.
Mistake 4: Reissuing a large bond with decades of accrued interest
You’ve owned a $50,000 bond for 20 years earning $25,000 in unreported interest. You decide to reissue it to your grandchild to make management easier. Now you owe income tax on $25,000 in interest in the current tax year.
Consequence: You face a surprise tax bill in the tens of thousands of dollars. Your grandchild gets the bond, but you’re stuck with the tax. This can happen even if you never cashed the bond and didn’t realize you had a tax obligation.
Mistake 5: Naming a minor grandchild as owner of bonds meant for college
You want to use the education exclusion to give your grandchild tax-free interest for college. But you registered the bonds in their name instead of your name when they were a child.
Consequence: The education exclusion only works if the bond owner is at least 24 years old at the time the bond was purchased and the bond is in their name or their parent’s name—not a minor grandchild. You can’t use the exclusion, and your grandchild pays full income tax on the interest even for college expenses. This is a critical timing issue.
Mistake 6: Holding bonds past the 30-year maturity and trying to pass them on
You bought bonds in 1994. It’s now 2024. The bonds are 30 years old and no longer earning interest. You want to give them to your grandchild.
Consequence: You can’t reissue a matured bond. You must redeem it. Matured bonds cannot be transferred. You cannot pass this money to your grandchild through gift transfers—you must cash it in first.
Step-by-Step Process to Add a Beneficiary
If you already own bonds and want to name your grandchild to receive them after death, follow these exact steps:
Step 1: Log into TreasuryDirect. Go to treasurydirect.gov and enter your username and password. If you don’t have an account, create one first. You can set up a free account in minutes with your email and Social Security number.
Step 2: Click “Manage Direct.” This tab is at the top of your account page. You’ll see options to manage your existing securities.
Step 3: Click “Transfer Securities” or “Changing Information.” Look for the option to manage your bonds. The exact name changes based on bond type. Some bond types use “Changing Information” while others use “Transfer Securities.”
Step 4: Select your bond. Check the box next to the bond you want to modify. You’ll see the bond number, face value, and issue date. Make sure you select the right bond if you own multiple.
Step 5: Look for SmartExchange option. If available, click it. SmartExchange handles the change instantly online without mailing any paperwork. Not all bond types support SmartExchange.
Step 6: Enter your grandchild’s information. Type their full legal name (first, middle initial, last), their Social Security number, and relationship. Double-check spelling—errors delay processing. Verify the Social Security number is correct before submitting.
Step 7: Confirm the change. Review the information on the confirmation screen. Make sure the name is spelled correctly and the Social Security number matches their actual number. Check for typos carefully.
Step 8: Submit. Click “Submit.” You’ll get an email confirmation. Keep this confirmation for your records.
If SmartExchange is not available: The system will show you a link to Form FS 4000. Download it, print it, fill it out by hand using black or blue ink, and follow the instructions to get it certified at a bank. Mail it to the address on the form. Certification means a bank officer verifies your identity and signature.
| Step | What You Do |
|---|---|
| 1-7 | Online through SmartExchange |
| 8 | Receive confirmation email |
Do’s and Don’ts
DO name a beneficiary on your bonds. It’s simple, free, and avoids probate. Your grandchild gets the bonds without court involvement when you die. This is the single most important action you can take.
Why: Probate is slow, expensive, and public. Naming a beneficiary skips all that hassle and expense.
DON’T assume bonds are transferred at death without paperwork. The Treasury doesn’t automatically know you died. Your family must notify them and provide documentation. The bonds won’t transfer without action from your heirs.
Why: If they don’t know, the bonds stay locked in your estate account and go through probate.
DO understand the difference between co-owner and beneficiary. Co-owners can redeem while you’re alive; beneficiaries can’t. Pick based on how much control you want now. Co-ownership gives your grandchild immediate access; beneficiary keeps you in control.
Why: A grandchild as co-owner might cash in the bond on impulse. A beneficiary can’t access it until you die.
DON’T hold bonds past 30 years hoping to pass them on. They stop earning interest and can’t be transferred. They become worthless to your grandchild at that point.
Why: You’re wasting time and opportunity. Redeem and reinvest if needed.
DO use the annual gift exclusion wisely. You can give $19,000 per person per year without paperwork. Use it every year to give $19,000 to each of your five grandchildren ($95,000 total) without filing a tax return.
Why: It’s free wealth transfer that never triggers taxes or paperwork requirements.
DON’T reissue large bonds with decades of accrued interest. You’ll owe immediate income tax on all that interest. The tax bill can be catastrophic for large bonds.
Why: The tax bill can be huge. Keep the bonds in your name and name a beneficiary instead.
DO consider Series I bonds if you expect inflation. They adjust upward with inflation, protecting your grandchild’s money. I bonds have built-in inflation protection.
Why: Series EE bonds are locked in at lower rates if inflation spikes beyond expectations.
DON’T name a minor as owner if you want the education exclusion. Bonds must be registered in the parent’s or adult’s name. The registration name matters for the tax exclusion.
Why: The education tax exclusion only works for bonds registered in an adult’s name (at least 24 at purchase).
DO keep your TreasuryDirect account password secure. You manage your bonds online. If someone gets your password, they could change beneficiaries or redeem bonds. Your grandchild’s inheritance could disappear.
Why: Your grandchild’s inheritance could disappear if hackers access your account.
DON’T forget about the 5-year early redemption penalty. Redeeming within 5 years costs you 3 months of interest. This penalty is automatic with no exceptions.
Why: It might not be worth cashing early. Hold longer unless you truly need the money.
Frequently Asked Questions
Q: Can I transfer my savings bonds to my grandchild while I’m still alive?
Yes. You can buy new bonds as gifts, add your grandchild as a co-owner, name them as a beneficiary, or reissue existing bonds in their name. Each method has different tax and control consequences. Buying new bonds as gifts is simplest.
Q: Will my grandchild have to pay gift tax if I give them bonds?
No. Federal gift tax only applies if you give more than $19,000 to one person in one year. Even then, filing Form 709 doesn’t mean paying tax—it just uses your lifetime exemption. You can give $19,000 per grandchild annually tax-free.
Q: What happens to bonds if I die?
It depends on registration. Single-owner bonds go through probate if large. Co-owner bonds pass to the surviving co-owner instantly. Beneficiary bonds pass to the named beneficiary without probate. Name a beneficiary now to avoid probate delays.
Q: Can my grandchild get tax-free interest for college?
Yes, if conditions are met. If the bond is Series EE (issued after 1989) or Series I, registered in your name, and you’re under income limits ($149,250 MAGI for married couples filing jointly in 2025), your grandchild can exclude interest from income if it pays college tuition and fees.
Q: What if the bond reaches 30 years old?
It stops earning interest and can’t be transferred. You must redeem it. You cannot pass a mature bond to your grandchild. Cash it in and buy new bonds if you want to give more.
Q: Do I have to report bonds when I file taxes?
Usually not while you hold them. Series EE and Series I bonds earn interest that you report only when you redeem them, unless you elect to report annually (not recommended). When your grandchild redeems inherited bonds, they report the interest.
Q: Will my grandchild owe taxes on inherited bonds?
Yes, on interest only. They don’t pay gift tax, but they owe federal income tax on all interest earned (both during your life and after you die) when they redeem. No state or local tax applies. Inherited bonds under $13.99 million don’t trigger federal estate tax.
Q: Can I buy bonds for a grandchild under 18?
Yes. You set up a linked account in your TreasuryDirect for them. You control it until they turn 18, then they take over. Each child can own up to $10,000 EE bonds and $10,000 I bonds per year in their linked account.
Q: What’s the difference between co-owner and beneficiary?
Co-owner can redeem while you’re alive. Beneficiary can’t touch it until you die. Co-owner passes automatically at death with no probate. Beneficiary requires death documentation. Use co-owner for control now; use beneficiary for protection.
Q: If I redeem early, what’s the penalty?
3 months of interest loss if you redeem within 5 years. If you hold 18 months and redeem, you get interest for 15 months only. After 5 years, no penalty applies. Minimum hold is 1 year before any redemption.
Q: Can I add multiple grandchildren as beneficiaries?
Yes. You can name one primary beneficiary and one or more contingent beneficiaries. If the primary grandchild dies before you, a contingent grandchild receives the bond. This creates a backup plan.
Q: What if my grandchild is irresponsible with money?
Name them beneficiary, not co-owner. Beneficiaries can’t touch the bond during your life. They must wait until you die, by which time you can also name a custodian in your will to manage the bond if they’re still young.
Q: Do bonds avoid probate?
Yes, if registered with a co-owner or beneficiary. Single-owner bonds under $100,000 can use a small estate process. Single-owner bonds over $100,000 require full probate. Name a beneficiary or co-owner to skip probate entirely.
Q: Can I transfer bonds to my grandchild’s trust?
Yes, but it triggers immediate income tax. Transferring to an irrevocable trust makes you pay tax on all accrued interest in the year of transfer. Transferring to your own revocable trust (that you control) defers the tax until you die.
Q: How much can I gift to all my grandchildren combined?
No federal limit on total gifts. You can give $19,000 to each of 10 grandchildren ($190,000 total) annually without gift tax paperwork. The $19,000 limit applies per individual, not per family. Married couples double this ($38,000 per grandchild).
Q: What forms do I need to transfer bonds?
For changes online: none (SmartExchange). For mail-in: Form FS 4000 for reissuing bonds, Form FS 5511 for transferring securities, or Form FS 5336 for small estate claims under $100,000.
Q: Is there a time limit to transfer bonds after someone dies?
No federal time limit, but act quickly. Bonds continue earning interest in the deceased’s name until transferred. Heirs have options depending on estate value. Probate deadlines vary by state—check your state’s rules.
Q: Can I roll savings bonds into a 529 college plan?
Yes, tax-free under conditions. You can redeem Series EE issued after 1989 or Series I bonds and roll proceeds into a 529 plan within 60 days with no tax on the interest. Income limits apply ($149,250 MAGI for married couples in 2025).
Q: What states don’t tax savings bond interest?
All states. State and local taxes do not apply to savings bond interest because bonds are federal securities. However, some states tax inherited property generally, which might affect the bond after your death.
Q: Should I buy EE or I bonds for my grandchild?
I bonds if you expect inflation; EE bonds for certainty. Series I bonds adjust every 6 months with inflation (currently 3.98%); Series EE bonds lock in a fixed rate currently 2.70%. For long-term growth, I bonds win in high inflation.
Q: Can my grandchild inherit bonds if they’re not a U.S. citizen?
Yes. Inheritance rules don’t require citizenship. However, they must have a Social Security number to own bonds registered in TreasuryDirect. Non-citizens with an ITIN (Individual Tax ID Number) can also own bonds.
Q: What if I made a mistake on the bond registration?
You can correct it. Use SmartExchange or File Form FS 4000 to fix errors in names, Social Security numbers, or other details. The Treasury corrects errors free and retroactively.
Q: Do bonds show up in my estate for estate tax purposes?
Yes. Bonds you own are part of your gross estate for federal estate tax calculations, even if you name beneficiaries. Beneficiary designation doesn’t remove the bond from your taxable estate. Most estates don’t owe tax because the exemption is $13.99 million (2025).
Q: Can I change the beneficiary anytime I want?
Yes. You can add, remove, or change a beneficiary anytime while you’re alive using SmartExchange or Form FS 4000. The beneficiary doesn’t have to agree. This gives you flexibility throughout your life to adjust your plans as needed.
Related reading
- How Can I Leave My Property to My Child Without Inheritance Tax? + FAQs
- How Do GST Taxes Apply to Gifts for Grandchildren? + FAQs
- How to Buy Savings Bonds for Grandchildren? (w/Examples) + FAQs
- Do Grandchildren Pay Inheritance Tax? (w/Examples) + FAQs
- Are Savings Bonds a Good Investment for Grandchildren? (w/Examples) + FAQs
- Should I Set Up a Trust for My Grandchild? (w/Examples) + FAQs
- Are Municipal Bonds a Good Investment? (w/Examples) + FAQs