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View Poll Results: well, are ya, punk?
Yes 2 6.06%
No 18 54.55%
Maybe 3 9.09%
Already own my allocation of TIPS/I-Bonds 10 30.30%
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 09:03 PM   #61
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Re: Buying 5-year TIPS at Monday's auction

I think I might be pretty close to understanding this:

It sounds like I'm going to be $5.80 wealthier because of the cash dividend and the bond funds increase in value. Does it hold true for an ETF where 100% the interest is reinvested back into the bond fund? Am I still $5.80 ahead in my IRA account?


(and this is from a guy who has been investing for at least 20+ years).
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 09:11 PM   #62
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Re: Buying 5-year TIPS at Monday's auction

I believe that the IRS treats these bonds just like zero coupon bonds so taxes are due on the phantom interest. You have to pay taxes on money before you see it so I think they are better candidates for tax deferred accounts.
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 10:02 PM   #63
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by 2B
I believe that the IRS treats these bonds just like zero coupon bonds so taxes are due on the phantom interest. You have to pay taxes on money before you see it so I think they are better candidates for tax deferred accounts.
The two TIPS funds I know of (TIP and VIPSX), both pay out the inflation adjustment as well as the real interest. TIP pays monthly. Vanguard pays quarterly. Since TIPS (and other treasuries) are state-tax free, it may be advantageous to hold these funds in your taxable account, depending on your tax situation, of couse.
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 10:22 PM   #64
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by wab
The two TIPS funds I know of (TIP and VIPSX), both pay out the inflation adjustment as well as the real interest.
Could you please clarify this? Do you mean pay out (as in a cash payout) or "pay out" (as in they report the phantom interest along with the real interest payout so the investor has to pay tax on both)?
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Re: Buying 5-year TIPS at Monday's auction
Old 11-11-2006, 10:27 PM   #65
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by FIRE'd@51
Could you please clarify this? Do you mean pay out (as in a cash payout) or "pay out" (as in they report the phantom interest along with the real interest payout so the investor has to pay tax on both)?
Pay out, as in distribute the inflation adjustment as part of the dividend. So, when you hold TIPS via such a fund, they are no different than any other treasury bond fund -- you pay taxes on what you receive as dividends.

I haven't been able to figure out exactly how they do this (well, I haven't actually asked them either). Obviously, they receive the inflation adjustment whenever they sell a bond or one matures, so it makes sense that they pay that out as part of the dividend. But I don't know if they try to "manage" their dividends. It looks like the TIP ETF might, since they report part of the distribution as return of capital.
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Re: Buying 5-year TIPS at Monday's auction
Old 11-12-2006, 08:45 AM   #66
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Re: Buying 5-year TIPS at Monday's auction

Hi, all!

I am interested in using TIPS as a good chunk of our AA once we finally sell out on our RE holdings.

Can anyone give the pros and cons on holding TIP funds (the way I am leaning as of now) vs. actually holding the bonds directly (which sounds more complicated to me).

To further clarify, I like using Vanguard so that is the fund I would use (VAIPX) and would be using this as a good part of our income stream.

Thanks for the help!

Jane


Edit: I re-posted this question under a new topic (TIPS: Bond vs. Bond FUND? Pros/Cons)
Please respond there to this question. Thanks!
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