Bond Exposure

[LovesLife]

Thanks, Charlie.

I am going to check into I bonds for the youngest. She may graduate high school January '06 instead of May '06. I could save some back in the TE MM and put part in I bonds, too.

Regards,
LovesLife

 

[soupcxan]

So for a youngster with a sizeable nest egg, what makes more sense at this point: intermediate term tax exempt bond fund or more I-bonds (I already have quite a bit). I don't need the income at the moment but someday I will...although I suppose I could always trade the SBs for funds at that point in time. Otoh, I will probably be in a higher tax bracket when I cash the SBs in.

 

[charlie]

Soup, don't forget that tax on interest is capped at 15% .....
so far at least.  IMHO, I-bonds are a no-brainer for a young
accumulator who does not need current income.

Cheers,

Charlie

 

[cute fuzzy bunny]

Charlie - how would you contrast equity ownership vs ibonds for that young accumulator?

 

[MJ]

Charlie,
Can you redem only part of a large I Bond amount or do you need to buy smaller amounts of multiple bonds.

 

[charlie]

TH, are you sandbagging me?  Soup should decide on his asset
allocation and buy the stock/bond ratio that he can sleep with.
At his age, I would think 80/20 would be about right. 

MJ, you have to cash in the whole bond when you sell ....thus it
is a good idea to break up the purchase in smaller increments.
There are several sizes to choose from.  Check out the following
site:

http://www.publicdebt.treas.gov/sav/sav.htm

Cheers,

Charlie

 

[cute fuzzy bunny]

Dang...my sandbagging attempt was detected

 

[MJ]

Soup, don't forget that tax on interest is capped at 15% .....
so far at least.

Charlie,

I was looking through the IBond site and didn't see any reference to the 15% cap.
Am I missing something?

Here is all I could find;
State and Local Taxes
I Bonds are exempt from state and local income taxes. They are, however, subject to state and local estate, inheritance, gift, and other excise taxes.

Federal Taxes
I Bonds are subject to all federal taxes imposed under the Internal Revenue Code of 1986, as amended.

 

[charlie]

MJ,

I was just reminding Soup that the max tax rate on ALL qualified
dividends (and capital gains) is 15% if your income bracket exceeds
the 15% tax rate. For those in the 10% or 15% brackets, the
tax on dividends and capital gains is only 5%. This may not last
if the dems get back in power. :

Cheers,

Charlie

 

[MJ]

Charlie,

Excuse me for being slow but does this mean that the interest from I Bonds are considered dividends and are taxed as capital gains currently maxed out at 15%.

MJ

 

[charlie]

MJ,

Gains from I-bonds when you sell are considered interest, not
capital gains. I was just pointing out that, in general, both interest
and capital gains are capped at 15% max (currently) to reinforce
the case for savings in a taxable account as an alternative to
saving in a 401k beyond the company match.

Cheers,

Charlie

 

[Martha]

Sounds like some miscomunication going on here on federal income taxes. Long term capital gains and qualified dividends: max tax rate 15% (with a few exceptions). Interest is taxed at ordinary income rates, including I bond interest.

 

[charlie]

Martha, mea culpa ...... my senior moments seem to be occurring
closer and closer together. Thanks for the correction.

Cheers,

Charlie

 

[cute fuzzy bunny]

I think the good news is if you're married and ER'ed and are pulling in enough interest and unqualified dividends to trip past 15%, you're living pretty dang good.

 

[MJ]

Sounds like some miscomunication going on here on federal income taxes. Long term capital gains and qualified dividends: max tax rate 15% (with a few exceptions). Interest is taxed at ordinary income rates, including I bond interest.

Thanks as well Martha.