Joint ownership of savings bonds works one of two very different ways depending on the format. A paper bond registered to two people with “OR” between the names lets either co-owner cash it independently, with no permission needed from the other. An electronic bond registered through TreasuryDirect uses “WITH” instead, and the first-named owner controls the bond by default; the second-named owner has no ability to view or transact in it unless the primary owner grants that access, and the primary owner can revoke it or remove the second owner entirely at any time.
Paper Bonds and Electronic Bonds Follow Different Rules
This is the single most important thing to understand about co-owned savings bonds, because the same word (“co-owner”) describes two very unequal legal arrangements.
Paper savings bonds use “OR” between two names, and either co-owner can independently cash the bond at a bank without the other person’s knowledge or consent.1eCFR. 31 CFR 353.7 – Authorized Forms of Registration Both owners have equal authority. Treasury does not allow “A and B” registration that would require both signatures.
Electronic bonds bought through TreasuryDirect use “WITH” and build in a hierarchy. The first-named person is the primary owner and holds the bond in their account. The second-named person is the secondary owner and, by default, cannot see or transact in the bond at all. The primary owner can grant view or transaction rights and can revoke them just as easily.2eCFR. 31 CFR 363.20 – Forms of Registration
The imbalance goes further. The primary owner of an electronic bond can remove the secondary owner without that person’s consent.2eCFR. 31 CFR 363.20 – Forms of Registration If you are named as the secondary owner on someone else’s electronic bond, your position is much weaker than the label suggests.
Co-ownership Is Not the Same as a POD Beneficiary
When you buy a savings bond you choose one of three registrations: sole owner, co-ownership, or owner with beneficiary. The last two both put a second name on the bond, but the legal effect is completely different. A payable-on-death beneficiary has no rights at all during the owner’s lifetime; the owner can cash the bond or change the beneficiary without notice. The beneficiary inherits only if the owner dies first.3TreasuryDirect. Registering Your Savings Bonds If you want the second person to have current access, co-ownership is the right choice; if you want a bond to pass at death with no earlier access, use a beneficiary designation.
Who Pays Tax on the Interest
Whose name appears on the bond matters less to the IRS than whose money bought it. If one co-owner funded the purchase in full, that person owes tax on all the interest, even if the other co-owner ends up redeeming the bond and keeping the cash.4Internal Revenue Service. Publication 550 – Investment Income and Expenses If both contributed, the interest is taxed in proportion to what each put in.
Savings bond interest is federally taxable when the bond is redeemed or reaches final maturity, whichever comes first. It is exempt from state and local income tax. Co-owners can elect to report interest annually as it accrues, but most people wait until redemption.
Fixing a 1099-INT Sent to the Wrong Co-owner
When a co-owned bond is cashed, the 1099-INT goes to the person who redeemed it. If that person is not the one who actually owes the tax, nominee reporting straightens things out. The recipient reports the full interest on Schedule B, then subtracts the portion belonging to the other co-owner as a Nominee Distribution, and issues a 1099-INT to that person while filing a copy with the IRS.5Internal Revenue Service. Instructions for Schedule B (Form 1040) Skip the step and the IRS assumes you owe tax on the whole amount.
What Happens When a Co-owner Dies
Both co-ownership and beneficiary registrations carry automatic survivorship. When one co-owner dies, the survivor becomes the sole owner without probate, by operation of federal regulation, and this overrides any conflicting instruction in a will or under state law.2eCFR. 31 CFR 363.20 – Forms of Registration For a paper bond, the survivor is treated as the sole and absolute owner and can redeem or reissue by providing proof of the other co-owner’s death.6eCFR. 31 CFR 353.70 – General Rules Governing Entitlement
If both co-owners die and it can be determined who died last, that person’s estate owns the bond. If the order of deaths cannot be established, a paper bond is split equally between the two estates, while an electronic bond passes to the estate of the primary owner.6eCFR. 31 CFR 353.70 – General Rules Governing Entitlement2eCFR. 31 CFR 363.20 – Forms of Registration
The interest that accrued during the deceased co-owner’s lifetime does not vanish. It can be reported on that person’s final tax return, or the surviving owner can include all of it in income when they eventually cash the bond. If neither happens, the IRS will look for the accrued interest at redemption.
How Co-ownership Affects Purchase Limits
Each Social Security number can buy up to $10,000 in electronic Series I bonds and $10,000 in electronic Series EE bonds each calendar year. A co-owned electronic bond counts only against the first-named owner’s limit. Being named as the secondary owner on someone else’s bond does not reduce your own annual limit.7TreasuryDirect. How Much Can I Spend on Savings Bonds?
A married couple can use this to hold $20,000 in I bonds a year: each spouse buys $10,000 as the primary owner with the other as the secondary owner. Each purchase counts only against the buyer’s limit.
Creditor Claims and IRS Levies
Co-ownership does not shield a bond from creditors. If a court judgment is entered against one co-owner, a creditor can force Treasury to redeem the bond, but only up to that co-owner’s share. The creditor or the court must first establish what percentage belongs to the debtor, whether by agreement between the co-owners or by a separate court order.8eCFR. 31 CFR 360.21 – Payment to Judgment Creditors
The IRS operates under a different rule. A federal tax levy against either co-owner reaches the entire bond, not just the debtor’s proportional share.8eCFR. 31 CFR 360.21 – Payment to Judgment Creditors Treasury pays the bond to the IRS, and the non-debtor co-owner is left to pursue any claim separately. This is a real risk if you are thinking about co-owning a bond with someone who has tax problems.
Adding or Removing a Co-owner
Registration changes work differently for the two formats. For an electronic bond, the primary owner handles it through the ManageDirect section of their TreasuryDirect account and, as noted above, can remove the secondary owner without consent.2eCFR. 31 CFR 363.20 – Forms of Registration Both people need valid TreasuryDirect accounts.
Changing the registration on a paper bond requires FS Form 4000, and both co-owners must agree and sign.9TreasuryDirect. Changing Information About EE or I Savings Bonds (Reissuing) The exception is a simple name change, such as after marriage, where only the owner requesting the change needs to sign. Processing times for paper bond transactions can run several months.
A divorce decree or property settlement can also direct Treasury to reissue a co-owned bond, typically to remove one spouse or substitute one for the other. Treasury will honor the change on receipt of a certified copy of the decree and, if separate, the property settlement.10eCFR. 31 CFR 360.22 – Payment or Reissue Pursuant to Divorce