Income Tax Refund -> I Bonds

[DaveLeeNC]

How many folks are (or already have) going to over-pay their income taxes this year simply to acquire another $5K in I-Bonds? I believe that I am going to do that.

dave

 

[Dash man]

How many folks are (or already have) going to over-pay their income taxes this year simply to acquire another $5K in I-Bonds? I believe that I am going to do that.



dave

I did. Not losing much interest if it were otherwise in a savings account.

 

[Drewjd]

I had no idea what you were talking about, so I looked it up. Didn't know about this "trick" to buy another $5K in I bonds if you have a tax refund to cover the purchase. Great info.

 

[COcheesehead]

For what, to gain maybe $35 a year?
File under just because you can, doesn’t mean you should.

 

[Dash man]

For what, to gain maybe $35 a year?
File under just because you can, doesn’t mean you should.

Assuming the May 1 rate is the same as the current rate:
$5,000 x 7.12% = $356
And that’s not compounded.

 

[COcheesehead]

Assuming the May 1 rate is the same as the current rate:
$5,000 x 7.12% = $356
And that’s not compounded.

Math is hard for me. One decimal and it changes everything.

 

[yakers]

And no state tax!

 

[donheff]

So, what's the deal? If you have a refund, you can get up to $5K in I-Bonds? Do they send you paper bonds or do you set up an account?

 

[OverThinkMuch]

If math is hard for anyone else, I'd suggest Vanguard's nest egg calculator. It only has the minimum number of moving parts: stock/bond allocation, starting amount and spending, and number of years.
https://www.vanguard.com/nesteggcalculator

If you want a finer level of detail, you can use filecalc afterwards. But I learned enough from just using Vanguard's, like 3% vs 4% withdrawal rate matters much more than 40% or 60% equities.

 

[DaveLeeNC]

So, what's the deal? If you have a refund, you can get up to $5K in I-Bonds? Do they send you paper bonds or do you set up an account?

The links below pretty much tell the story.

https://www.irs.gov/refunds/using-your-income-tax-refund-to-save-by-buying-us-savings-bonds

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

https://www.treasurydirect.gov/indiv/research/articles/res_invest_articles_tax_refund_1208.htm

I have run into 2 'fine print' things in what I have read.

1) If the IRS makes an adjustment in your refund downward (even by $1) none of your refund will go to I bonds.

2) It is not clear to me that any excess refund (beyond that designated to I Bonds) can be applied to your 2022 estimated payments.

I would also comment that somewhere in there is the statement that you can do that with state tax refunds as well. I have no knowledge of this.

dave

 

[oldtimer]

Assuming the May 1 rate is the same as the current rate:
$5,000 x 7.12% = $356
And that’s not compounded.

This is assuming you get $5k I bond in April'22 so you have 2 six month periods @7.12%.

Six months (6/12m = 1/2 yr) at @7.12% x $5,00 x 2 six month periods.

 

[Dash man]

This is assuming you get $5k I bond in April'22 so you have 2 six month periods @7.12%.

Six months (6/12m = 1/2 yr) at @7.12% x $5,00 x 2 six month periods.

I think he got my point that he made a math error.

 

[pb4uski]

At this point my 2021 withholding is about $100 more than my estimate of my 2021 tax so I'm not at all worried about underpayment penalties.

My plan is to complete my 2021 return in February 2022 and verify that I am slightly overpaid, then make a 2021 estimated payment of $5,000, then once that estimated payment clears my bank I'll efile my return with $5,000 of my refund being used to purchase $5,000 of i-bonds and any remainder applied to my 2022 taxes.

 

[Sunset]

I did. Not losing much interest if it were otherwise in a savings account.

+1
Same reasoning.

 

[Splash]

My plan mirrors pb4uski post #13

 

[omni550]

I just finished figuring out my taxes on Turbo Tax. At the end, in TT, I filled out Form 8888 to direct the bulk of my refund to buying I-bonds, the remaining $5 to be sent to me via a check.

Now I'm trying to file electronically...but TT keeps asking where I want 100% of my refund to go, with only 2 choices...direct deposit to a checking account, or mail me a check.

Is there a workaround for this^ screen?

I prefer to e-file, as it doesn't cost anything extra and it gets there immediately (vs print out a paper return and go to the USPS to mail.)

omni

 

[tulak]

If I remember correctly, you need to select direct deposit and then you’ll be given an option to buy I Bonds?

Well, maybe not.

Here are the screenshots from the finance buff: https://thefinancebuff.com/overpay-taxes-buy-i-bonds-better-than-tips.html

Hopefully that will help.

 

[omni550]

tulak,

Thanks for the link. It was a huge help. And you were correct re: Direct Deposit.

If anyone else gets stuck at this point, here's how it goes:

It wasn't obvious in TT, but if you choose "Direct Deposit" for your refund, TT brings up a secondary screen that allows you to choose a bank account(s) into which you could have your refund deposited, along with another choice via a checkbox at the bottom of the page where you can indicate that you'd like to purchase I-Bonds with your refund. Check that box and you're taken to a few more screens to fill out 3 bond amounts and names of owners/beneficiaries.

Paper bonds will be sent out when your return is processed.

omni

 

[tulak]

Sweet, I’m glad it worked out.

 

[Bruno]

So, what's the deal? If you have a refund, you can get up to $5K in I-Bonds? Do they send you paper bonds or do you set up an account?

They send you Paper Ibonds. You can move them to a Treasury Direct account or just hold them and cash them in at the Bank.