Do I-Bonds belong in a portfolio?

[marko]

It's not as inconsequential as you think. Our first purchase was in October 2021 and through the 2021 and 2022 annual limits, gifts for future years, our 2021 tax refund and purchases for trusts we've been able to invest over 4% of our retirement savings in i-bonds.

So there's more options than a flat/firm $10k limit? I stand corrected.

 

[pb4uski]

So there's more options than a flat/firm $10k limit? I stand corrected.

The limit is $10k per person, so $20k a year for a couple. Plus you can get another $5k tax refund in paper i-bonds and then mail them in and add them to your TD account... so that's $25k/year for a couple. Plus each trust is entitled to $10k and we have 3 trusts (his, hers and joint) so that increases the annual allowable for a couple to $55k.

Plus you can pre-buy future years today and get a head start on the one-ear minimum holding period but still get paid interest the same as i-bonds that you buy using your allowance and alot of people have pre-bought their 2023 and in some cases their 2024 allocations as gifts for their spouses.

 

[Chuckanut]

Am I missing something? A $10k annual limit equates to .05% to 2% of the investments of most folks here. All this quibbling over an $800 - annual return?

Throw off those yearly limitations and look at this long term.

You are right in that $800 probably won't make or break most of us. But, if nothing else, I can give the $800 to a worthy charity, or to my children and grandchildren. That would be a lot more fun than letting the Blue Sky Bank keep it. And I can do it year after year.

$800 here and $800 there, pretty soon it adds up to real money.

 

[marko]

The limit is $10k per person, so $20k a year for a couple. Plus you can get another $5k tax refund in paper i-bonds and then mail them in and add them to your TD account... so that's $25k/year for a couple. Plus each trust is entitled to $10k and we have 3 trusts (his, hers and joint) so that increases the annual allowable for a couple to $55k.

Plus you can pre-buy future years today and get a head start on the one-ear minimum holding period but still get paid interest the same as i-bonds that you buy using your allowance and alot of people have pre-bought their 2023 and in some cases their 2024 allocations as gifts for their spouses.

Hmmmm. I need to do some research. Are the trusts revocable or irrevocable? Or does it matter?

 

[SJhawkins]

We were buying ibonds when it was not cool, keeped buying when everyone was falling all over themselves to buy them this past year too. Plan is keep buying for another few years.

2-5 years from now when we plan to retire will have 3+ years of living expenses in Ibonds. If the market tanks right when I want to retire will use the Ibonds, if not going to let them ride, I would even buy more!

I realize I could possibly do better but willing to give that up for a few years of peace of mind. Ibonds are a set it and forget it deal for the most part, I like that too. As of today Ibonds make up 5% of the portfolio, I would have no issue running it upto 10%.

Place your bets and take your chances at the table, nothing is perfect.

 

[NW-Bound]

$800 here and $800 there, pretty soon it adds up to real money.

$20K/year per person and interest at almost 10%, is that not $2K/year?

Well, it may not be much, but it helps buy some Wagyu beef that Robbie keeps pushing here.

 

[pb4uski]

Hmmmm. I need to do some research. Are the trusts revocable or irrevocable? Or does it matter?

Doesn't matter.

 

[pb4uski]

$20K/year per person and interest at almost 10%, is that not $2K/year?



Well, it may not be much, but it helps buy some Wagyu beef that Robbie keeps pushing here.

$10k per person per year... $20k per year for a couple.

Plus $5k per year in tax refunds per return

 

[marko]

$10k per person per year... $20k per year for a couple.

Plus $5k per year in tax refunds per return

How does that tax refund work?

 

[njhowie]

How does that tax refund work?

You can designate up to $5000 of your tax refund to purchase iBonds using Form 8888. They mail you paper bonds and then you can convert them to electronic and manage through Treasury Direct.

https://www.treasurydirect.gov/indiv/research/faq/faq_irstaxfeature.htm

 

[marko]

You can designate up to $5000 of your tax refund to purchase iBonds using Form 8888. They mail you paper bonds and then you can convert them to electronic and manage through Treasury Direct.

https://www.treasurydirect.gov/indiv/research/faq/faq_irstaxfeature.htm

Ok. Thanks. I haven't had a refund since I was about 19 years old. I will investigate the other benefits though and better educate myself on this option.

 

[njhowie]

Ok. Thanks. I haven't had a refund since I was about 19 years old. I will investigate the other benefits though and better educate myself on this option.

You can make estimated tax payments during the year, overpaying what you actually owe, forcing a refund. That would mean some period of time where you aren't earning any money on those funds. But, if it's just a few months (send estimated payment in December, file early and hope processing is quick), it could be worth doing.

 

[NW-Bound]

$10k per person per year... $20k per year for a couple.

Plus $5k per year in tax refunds per return

Yes. I meant to write "$20k per couple". I am really getting senile.

I am not buying more though. I already have 5 years worth of expenses in I bonds that I bought in the mid-2000s. They paid 1.2% above inflation.

 

[finnski1]

Yes. I meant to write "$20k per couple". I am really getting senile.

I am not buying more though. I already have 5 years worth of expenses in I bonds that I bought in the mid-2000s. They paid 1.2% above inflation.

You may be getting senile but you still got the math right!
Eventually you'll get the math right but won't remember why.

 

[NW-Bound]

You may be getting senile but you still got the math right!
Eventually you'll get the math right but won't remember why.

I once told my wife that it's like a computer still having a good CPU, but its memory is dropping bits.

 

[Dash man]

You can make estimated tax payments during the year, overpaying what you actually owe, forcing a refund.

If you don’t pay your estimated taxes in a timely manner, they’ll penalize you and not give you the iBond, even if you overpaid enough.

 

[Sunset]

You can make estimated tax payments during the year, overpaying what you actually owe, forcing a refund. That would mean some period of time where you aren't earning any money on those funds. But, if it's just a few months (send estimated payment in December, file early and hope processing is quick), it could be worth doing.

That's what we did, and considering the bank account was earning 0.5% , losing the interest for about 4 months was worth snagging the 7.16% and the 9.62% that follows.

If a person is doing estimated payments, one could always make the last payment on January 15th, the one with an extra $5K.

 

[pb4uski]

You can make estimated tax payments during the year, overpaying what you actually owe, forcing a refund. That would mean some period of time where you aren't earning any money on those funds. But, if it's just a few months (send estimated payment in December, file early and hope processing is quick), it could be worth doing.

You don't have to do it throughout the year, though that would be a common way to do it.

I did my 2021 tax return in late February and it showed that I was due a $17 refund... so in early March 2022, I made an additional 2021 estimated payment for $4,983 to bring my refund to $5,000 and after the $4,983 estimated payment cleared my bank I filed my return electronically requesting my $5,000 refund in the form of i-bonds. I then sent them in to Treasury Direct and they are now in my TD account.

 

[OldShooter]

If you don’t pay your estimated taxes in a timely manner, they’ll penalize you and not give you the iBond, even if you overpaid enough.

If you can pay by withholding from an IRA distribution you can just pay some or all your estimated taxes in December.

 

[Trailwalker]

If you can pay by withholding from an IRA distribution you can just pay some or all your estimated taxes in December.

One of the things that I learned from this forum which made things easier.

 

[Dash man]

If you can pay by withholding from an IRA distribution you can just pay some or all your estimated taxes in December.

How big does it have to be?

 

[Montecfo]

I-bonds are an investment. They are attractive right now due to high inflation. There is no bond you can buy right now with a similar risk-adjusted return.

The limits are annoying, that is true. Buy if you are clever there are ways to wire around it to some extent.

I was sold when I realized by investing $10,000 I could make as much interest as investing $100k in my other fixed income proxies in this low rate environment. That gave me a new perspective. That was last December. I believe I have $ 85k im them now.

But if you dislike them, feel free to not invest.

 

[OldShooter]

How big does it have to be?

Not sure I understand the question. Every December we pay the safe harbor amounts Fed and State via IRA withholding. We never bother to actually calculate an estimate and don't make any other payments during the year. This works well when taxes are roughly level or rising, but if our taxes will drop significantly in year one compared to the safe harbor year zero amount then paying the safe harbor may not be so desirable.

If we wanted to have $5K extra for an I-bond then we'd have to calculate a tax estimate and compare it to the safe harbor number and add $$ as necessary.

Yes, I too learned of this withholding trick here at er.org. I am also learning about I bond tricks from this thread though I am still not convinced it is something we want to do. We can't do them in IRAs, which is where almost all of our money is.

 

[Dash man]

Not sure I understand the question.

I expect to pay approximately the same amount of tax this year as last. I did large Roth conversions in the first and second quarters. I will easily pay my safe harbor amount this year, as I did last year. The IRS hit me with a $200 penalty because my estimated payments and withholding were not enough early in the year when I did most of our Roth conversions last year, even though I had overpaid $11k for the entire year. They also didn’t give me the $5,000 iBond I had requested claiming I didn’t have enough, even though I received a refund of the $11k I overpaid, minus the $200 penalty.
I filed on April 14 this year and wasn’t aware of the penalty until it was after the quarterly estimated tax due date. So, I wanted to know if there is a minimum amount for this year end IRA tax withholding that folks write about in this forum? I’ve already paid over half of my taxes this year, but probably underpaid a little for the first quarter. If there’s a way to avoid the penalty, I’d like to avoid it.

 

[OldShooter]

... So, I wanted to know if there is a minimum amount for this year end IRA tax withholding that folks write about in this forum? I’ve already paid over half of my taxes this year, but probably underpaid a little for the first quarter. If there’s a way to avoid the penalty, I’d like to avoid it. ...

Well, I am not hampered by any kind of expertise here, but I will guess that to get a $5K refund, your total payments have to be $5K over the actual tax due. So you will have to figure that or just grab a number big enough that you're sure you've overpaid by the $5K. Withholding is considered to have been paid during the whole year, not in December, so that may help you if you underpaid first quarter, but this SGOTI really knows nothing factual about the situation.

Re quarterly payments, when I was doing them I just paid what my tax guy told me to pay. My guess is that they totaled the safe harbor amount but he is retired so I won't bother him for the answer. My life has simplified since that era so now I just do my own taxes and the December withholding thing. I have never mixed that with quarterly payments.