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Fixed Income Investing Question
Old 03-16-2018, 04:15 PM   #1
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Fixed Income Investing Question

In Canada, they have a financial instrument called a GIC (Basically the equivalent of a CD). They have an option whereby the interest is paid fully at the end of the GIC period. 2,3, 4, 5, 7 & 10 years. So taxes are not incurred until the instrument expires.

Is there such a thing available in the USA? Whether it be a CD or . I need to keep our income low for another 5 years and I think this may be an answer. Yes I know taxes will need to be paid at the end of the period, and they will be a little higher than if incurred monthly/annually.

Any insight would be appreciated.
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Fixed Income Investing Question
Old 03-16-2018, 05:36 PM   #2
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Fixed Income Investing Question

The Garanteed Income Contract was an option within our 401k many years ago when Megacorp's finance division ran their own funds. It was replaced by Stable Value Funds which are also only available within 401k plans AFAIK.
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Old 03-16-2018, 05:39 PM   #3
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In the US AFIK, "GIC" refers to a Guaranteed Investment Contract. Not equivalent to a CD, more equivalent to a short-term bond since they are issued by insurance companies. I had one in a 401K during the 70s/80s excitement, AFIK at 17%(!). Insurance company went bust, California insurance guarantee fund eventually kicked in (after a year IIRC) and I think I got most of my principal back. No interest though.

See also: https://en.wikipedia.org/wiki/Guaran...tment_contract

Not something I would even consider these days. Maybe a zero-coupon or a stripped bond would work for you? I"m not sure what the tax deal is with those. I've never messed with them.
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Old 03-16-2018, 06:18 PM   #4
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Sounds like Executive Life.
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Old 03-16-2018, 06:25 PM   #5
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Sounds like Executive Life.
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Old 03-16-2018, 07:38 PM   #6
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GIC is Guaranteed Investment Certificate, not Insurance. Google is your friend.

https://www.cibc.com/en/personal-ban...ents/gics.html
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Old 03-16-2018, 08:14 PM   #7
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Originally Posted by OldShooter View Post
In the US AFIK, "G
IC" refers to a Guaranteed Investment Contract. Not equivalent to a CD, more equivalent to a short-term bond since they are issued by insurance companies. I had one in a 401K during the 70s/80s excitement, AFIK at 17%(!). Insurance company went bust, California insurance guarantee fund eventually kicked in (after a year IIRC) and I think I got most of my principal back. No interest though.

See also: https://en.wikipedia.org/wiki/Guaran...tment_contract

Not something I would even consider these days. Maybe a zero-coupon or a stripped bond would work for you? I"m not sure what the tax deal is with those. I've never messed with them.
From The Street-

Whether the bond is taxable or tax exempt, you have to accrue interest on the bond. That means you have to calculate the portion of the difference between the purchase price and face value that accrued to you each tax year, even though you didn't receive any payment.

Taxable zero coupons are taxed based on accrued value each year it appears.
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Old 03-16-2018, 09:10 PM   #8
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You don't need to calculate it... they send you a 1099 for the money you won't get until the bond matures. Quite annoying.
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Old 03-16-2018, 09:53 PM   #9
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.....Is there such a thing available in the USA? Whether it be a CD or . I need to keep our income low for another 5 years and I think this may be an answer. Yes I know taxes will need to be paid at the end of the period, and they will be a little higher than if incurred monthly/annually.

Any insight would be appreciated.
To my knowledge, retail GICs (guaranteed investment contracts) are no longer available in the US... or if they are it is a very thin market. As others have mentioned, some insurers still issue GICs in the institutional space.

However, a single premium deferred annuity or SPDA, has a lot of similarities to a GIC.

We keep our income low by holding equity mutual funds in taxable accounts... not only is the income low, it is also tax preferenced and 0% tax if your income is below $101,200 for a married couple.
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Old 03-16-2018, 09:57 PM   #10
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Originally Posted by pb4uski View Post
To my knowledge, retail GICs (guaranteed investment contracts) are no longer available in the US... or if they are it is a very thin market. As others have mentioned, some insurers still issue GICs in the institutional space.

However, a single premium deferred annuity or SPDA, has a lot of similarities to a GIC.

We keep our income low by holding equity mutual funds in taxable accounts... not only is the income low, it is also tax preferenced and 0% tax if your income is below $101,200 for a married couple.
Good points pb4uski.

He did not mention why he needed to keep income low, but if it is the ACA Health plan, both muni bond interest and dividends/capital gains count as income even though there is 0 tax due in the lower tax brkts. He/she did
not state the reason for the low income preference.
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Old 03-16-2018, 09:59 PM   #11
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If it was ACA he could go with a no or low dividend equity fund.
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Old 03-16-2018, 10:10 PM   #12
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If it was ACA he could go with a no or low dividend equity fund.
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Old 03-16-2018, 10:16 PM   #13
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That would be one candidate... I'm sure there are others.
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Old 03-17-2018, 03:27 AM   #14
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Series E/EE US Treasury Savings Bonds. You can elect to defer tax on interest until you cash the bonds in.
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Old 03-17-2018, 05:28 AM   #15
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Series E/EE US Treasury Savings Bonds. You can elect to defer tax on interest until you cash the bonds in.
And iBonds
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Old 03-17-2018, 09:35 AM   #16
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Does a Fixed Deferred annuity act the same as a CD, but hold tax liability till maturity?
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Old 03-17-2018, 09:45 AM   #17
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As I mentioned in Post #3 I am not familiar with the tax treatment of zeros and stripped bonds. So now I understand that interest on zeros is taxes basically on a accrual basis. How about strips? Also on an accrual basis or all at the end?

Re EE- and I-bonds IIRC you can only buy $10K per year. So not really an option for serious money.
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Old 03-17-2018, 05:08 PM   #18
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Does a Fixed Deferred annuity act the same as a CD, but hold tax liability till maturity?
Pretty much. A couple comments...

A fixed interest deferred annuity doesn't really "mature". They are typically sold with surrender charges that grade down to zero. Many people buy them with the intent of surrendering when the surrender charge hits zero. For them, that is the "maturity". But, you can hold them for a much longer period, after the surrender charge disappears.

The CD competitor design has a fixed, guaranteed interest rate for the life of the surrender charge. They will have a guaranteed interest rate after that, but it's likely to be lower.

The surrender charge calculation on a single premium annuity is likely to be different from a CD. In my experience, SPDA surrender charges start out much higher.
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Old 03-17-2018, 05:12 PM   #19
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+1 Interest aka inside build-up is tax-deferred until you withdraw but surrender charges can be steep depending on the product design.

Can you elaborate on what you are trying to do and why?
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Old 03-17-2018, 05:16 PM   #20
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Can you elaborate on what you are trying to do and why?
Reduce income for ACA purposes.
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