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Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
•
Bankrate.com |
IRA investing with savings bonds
Dear Dr. Don,
Can you purchase Series I savings bonds
with IRA money?
Thanks,
Ron Retirement
Dear Ron,
You can fund an IRA account with Series I savings bonds,
but the organization that is acting as the trustee or custodian
on the account has to accept savings bonds as investments in the
account.
The trustee or custodian completes Form
PDF 5374-1, Order for Series I U.S. Savings Bonds to be Registered
in Name of Fiduciary. The funds are transferred by the trustee
or custodian to the Federal Reserve Bank for processing, and the
bonds are sent to the trustee or custodian. The bonds are registered
using your Social Security number but are in the name of both you
and the trustee or custodian for your benefit.
According to IRS
Publication 590, Individual Retirement Arrangements, "The
trustee/custodian must be a bank, a federally insured credit union,
a savings and loan association, or an entity approved by the IRS
to act as trustee or custodian."
Alternately, you could invest in the Treasury Inflation
Indexed bonds. These U.S. Treasury securities have been issued in
five-year, 10-year and 30-year maturities. There are some drawbacks
to holding TII bonds in taxable accounts, mainly that you have to
pay income tax on investment returns that you won't realize until
the security is redeemed or matures, but that isn't a problem in
tax-advantaged Roth and traditional IRA accounts.
You can't use the Treasury Direct program to buy TII
bonds in an IRA account unless your bank is willing to act as custodian
for your Treasury Direct account, which most banks are unwilling
to do. You can, however, buy these securities in a self-directed
IRA account held at a brokerage firm.
There are also mutual funds that invest in TII bonds,
such as Vanguard Inflation Protected Securities (VIPSX), 59 Wall
Street Inflation-Indexed Securities Fund (BBHIX)
and American Century Inflation-Adjusted Treasury Fund (ACITX).
I didn't have any luck on the Internet finding financial
institutions that indicated they would accept savings bonds or Treasury
Direct purchases of U.S. Treasury securities in IRA accounts. There's
nothing really in it for the firms to promote this service, so you'll
have to shop around. Start with the financial institutions that
you currently do business with, especially your credit union.
-- Posted: March 7, 2002
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