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Old 05-04-2021, 03:23 PM   #21
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Originally Posted by audreyh1 View Post
That won’t work, because the interest accrued becomes taxable the year they mature.
So I just checked our issue date and it was 12/5/2005, so I assume that the interest, which will likely be about 100% of the issue amount over the 30 years will all be due in 2035, unless we start to redeem them systematically prior to that year. Something to think about if that amount hitting in one year kicks us up to a higher IRMAA tier, or higher tax bracket.

Do you know Audrey if the bonds are half and half in each of our names with the other party the beneficiary if all of the interest is taxable in the year of death of the decedent, should one or both predeceased before maturity?

And I think I recall there is no exemption from taxes for things like education of a grandchild?

I know this is a 1st world problem. I'm not complaining, just preparing.
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Old 05-04-2021, 03:25 PM   #22
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For reference:
https://www.treasurydirect.gov/indiv...nsider.htm#tax

Quote:
Reporting the interest all at once at the end

Most people defer reporting the interest, putting it off until they are filing a federal income tax return for the year in which they receive what the bond is worth including the interest.

When electronic I Bonds in a TreasuryDirect account stop earning interest, they are automatically cashed and the interest earned is reported to the IRS.
You have to look at your account early the next year to get your 1099-INT.
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Old 05-04-2021, 03:29 PM   #23
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We have 11 ($5k face value) I Bonds purchased around 2000 with fixed rates of 3.4% and 3.6%. I wish that I had bought more.

A few years ago I was thinking that I needed a plan to sell these over time to avoid selling them all in one year (putting me into income brackets that would affect Medicare costs). Given the interest rates of these bonds vs the current interest rate environment, I wonder if it might be best to let these things mature at 30 years and 'trickle sell them' after they stop earning interest. But 9 years from now is a long time and things may look a whole lot different in a few years.

dave
Heh, heh, now into RMDs, I don't suppose it will make much difference if I sell all my I-bonds all at once or instead attempt to "titrate" my taxes with "strategic redemption." What am I saying?! I'll probably die with them (paper, still) in the desk drawer. They expire in '33 and I'll be (maybe) 85. I just like having something that actually earns some interest - whether I ever get to spend any of it or not. YMMV
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Old 05-04-2021, 03:30 PM   #24
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Originally Posted by Golden sunsets View Post
So I just checked our issue date and it was 12/5/2005, so I assume that the interest, which will likely be about 100% of the issue amount over the 30 years will all be due in 2035, unless we start to redeem them systematically prior to that year. Something to think about if that amount hitting in one year kicks us up to a higher IRMAA tier, or higher tax bracket.

Do you know Audrey if the bonds are half and half in each of our names with the other party the beneficiary if all of the interest is taxable in the year of death of the decedent, should one or both predeceased before maturity?

And I think I recall there is no exemption from taxes for things like education of a grandchild?

I know this is a 1st world problem. I'm not complaining, just preparing.
Why don't you try the link I posted above.

I don't know how it works for the case of the owner dying and the bond going to the beneficiary or to a co-owner. Looks like it could be complicated as retitling an iBond has tax consequences.
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Old 05-05-2021, 12:06 AM   #25
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We have a thread on this from a few weeks ago. Most folks are very happy/excited about the new rate.

I opened a couple of new Treasury Direct accounts specifically to take advantage of this, and the expectation that the inflation component will be really good for the next couple years. Then the interest rate component will move higher when Powell has had enough inflation or economic forces push him. In any case, compared to what the options are for risk free return at this time, the I Bonds appear to be the way to go.
Why should one get excited about inflation reaching 3.54%, and that I bond merely matches it?

Why is it different than when inflation was 2%, and I bond also matched it?

Either way, there is no real return. In fact, you will have to pay taxes on that interest, and the tax on the 3.54% is going to be more than on the 2%.
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Old 05-05-2021, 08:17 AM   #26
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Why should one get excited about inflation reaching 3.54%, and that I bond merely matches it?

Why is it different than when inflation was 2%, and I bond also matched it?

Either way, there is no real return. In fact, you will have to pay taxes on that interest, and the tax on the 3.54% is going to be more than on the 2%.
Where else can I get 3.54% on cash right now? I'll hang up and wait for the reply.
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Old 05-05-2021, 08:40 AM   #27
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Where else can I get 3.54% on cash right now? I'll hang up and wait for the reply.
I-Bonds are NOT cash. Not even close (until you get 5 years out, anyway).

The point is that what an I-Bond is IN ALL CASES is a fixed rate (that is I-Bond dependent) and an inflation rate (external to I-Bonds). The recent announcement is that the I-Bond part (fixed rate) is 0% which is (historically) as bad as it has ever been.

I also did not see anything in the recent I-Bond announcement (fixed rate as bad as it has ever been and inflation is what it is) to get excited about. There certainly was nothing to change my perspective on whether or not I-Bonds (bought right now) are a good deal.

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Old 05-05-2021, 08:52 AM   #28
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Where else can I get 3.54% on cash right now? I'll hang up and wait for the reply.
I get your point, but it only takes me so far.

Let's see, assume I buy the max, $10,000 worth at 3.54% for 6 months is less than $175 interest. I will ignore the early withdrawal penalty for now.

I could open an account at Huntington Bank for example, deposit $1000, and get $150 bonus in 2 weeks and pull money out in 90 days. No early withdrawal penalty.

60% annualized return. And Citi and a few others have new account offers for greater dollars but a few more hoops.
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Old 05-05-2021, 11:10 AM   #29
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If fixed rate is 0 and inflation rate is 1.77, how is the composite rate 3.54? shouldn't the composite rate equal the fixed rate plus the inflation rate?
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Old 05-05-2021, 11:15 AM   #30
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If fixed rate is 0 and inflation rate is 1.77, how is the composite rate 3.54? shouldn't the composite rate equal the fixed rate plus the inflation rate?
They state it in for the 6 months IIRC, so 1.77 becomes 3.54 annualized - but not promised since next 6 months rate will likely change. Correct me someone if I'm wrong since YMMV.
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Old 05-05-2021, 11:22 AM   #31
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Why should one get excited about inflation reaching 3.54%, and that I bond merely matches it?

Why is it different than when inflation was 2%, and I bond also matched it?

Either way, there is no real return. In fact, you will have to pay taxes on that interest, and the tax on the 3.54% is going to be more than on the 2%.
I agree that there's not much excitement about just meeting inflation (and that assumes you believe that the folks who bring you the bonds are telling the whole truth about the inflation, heh, heh.) BUT at least (ignoring your taxes-to-be-paid, heh, heh) you're not sitting on 0% interest in a checking account or 1/2% in more typical current savings. I guess the excitement is NOT losing 3% and still paying taxes on 1/2% - so there's that. We sometimes take our excitement where we can find it.

We can choose to be happy or sad and we can choose to be excited or blasé I suppose so YMMV.
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Old 05-05-2021, 11:26 AM   #32
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If fixed rate is 0 and inflation rate is 1.77, how is the composite rate 3.54? shouldn't the composite rate equal the fixed rate plus the inflation rate?
No, because that composite rate is annualized and compounded at 6 months.
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Old 05-05-2021, 12:02 PM   #33
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The formula is:

FR + (2 x IR) + (Fr x IR)

In this iteration the FR is 0, so the formula simply becomes 2 x 1.77=3.54
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Old 05-05-2021, 08:08 PM   #34
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The formula is:
FR + (2 x IR) + (Fr x IR)
I couldn't tell if people knew that or not. It seems not.
IR is the % change in the CPI-U from the value announced last October to the value announced in April, 260.280 to 264.877, which is 1.77%. (The CPI is announced every month on bls.gov/cpi)
IR will change again on November 1, using the change in CPI-U from April to October. This will be known about Oct. 15.
And keep in mind that the interest rate of *your* individual bond changes on the 6-month anniversary of purchase. That is, the rates of bonds purchased in January change on Jan 1 and July 1. Using the rates in force at those times.

I wish I had been in the meeting where they decided to add the (Fr x IR) part. Hey, it added a big .05% to my 3% Fixed I-bonds from 2001. From 6.54% to 6.59%. Yippee.
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Old 05-05-2021, 08:14 PM   #35
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I-Bonds are NOT cash. Not even close (until you get 5 years out, anyway).
A small but noticeable part of my cash reserve is in I-bonds. Mostly with 3% fixed rate from 2001, but I'll throw $10K in near the end of May to get 3.54% for 6 months. Yes, I have to hold for a year. Yes, the rate may go down after 6 months.

3.54% is better than anything else I can do with loose cash right now. That cannot be disputed.

I also chase bank account bonuses. And I clip coupons. Every little bit helps.
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Old 05-05-2021, 09:01 PM   #36
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I count IBonds as part of my cash allocation in my retirement portfolio AA. Don’t have to worry about inflation risk, and is like a 1 yr non-breakable CD or a 5 year CD with a 3 month penalty.
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Old 05-05-2021, 09:17 PM   #37
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I do consider I Bond as part of my cash, and that is because it is not really a bond that loses value when interest rate goes up. And no, I do not get excited about this.

The larger part of my cash, I hold in a short-term T-Fund by Black Rock which pays peanuts. But I use it as collateral to write put options on selected stocks, and that pays a lot more than 3.54%. There's of course risk, but it's a risk that I can handle.
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Old 05-06-2021, 04:52 AM   #38
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I started acquiring IBonds recently....sure it's small potatoes for some of us....$20k per year per couple. I also treat these funds as cash since once the holding period expires you can liquidate as needed without risk of loss of purchasing power. I wonder why when some dismiss these as useless. My question is why not? It's super easy to open an account and fund it.....these bonds do what they are supposed to do as evidence of the 3.54% current yield....makes it even more valuable for those of us living in a state that has income tax.
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Old 05-06-2021, 06:58 AM   #39
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I count IBonds as part of my cash allocation in my retirement portfolio AA. Don’t have to worry about inflation risk, and is like a 1 yr non-breakable CD or a 5 year CD with a 3 month penalty.
I meant to type interest rate risk.
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