Sell I Bonds....or not?

[stevelb]

So if I sell my 3.38% bond tomorrow, pay the tax (22% bracket), and reinvest the net proceeds at 5% how long before I break even and pull ahead of what I would have earned by not cashing out the bond.

[njhowie]

You owe the tax whether you pay it now or later. Do you owe the 3-month early withdrawal penalty for not holding the I-Bond(s) for 5 years?

You also don't know how the I-Bond will adjust going forward, though lower is likely at this point.

Assuming you are able to lock in the 5% for some period of time, you would be ahead from day one. If you are paying the 3 month early withdrawal penalty, that's 1/4 of 3.38%, or 0.845%. On a 5% investment, you'd make that back, above the 3.38% at just over 6 months.

[pb4uski]

Need more info... like the proceeds and your initial investment because the difference is the interest that will be taxed at 22%.

[stevelb]

Proceeds will be $11,000. Interest is $1000, as I said taxed at 22%. Therefore 10,780 left to invest at new rate...let's assume 5%. How long to pull ahead of just leaving the $11,00 bond alone... again just assuming the rate stays at 3.38%. Thanks.

[njhowie]

Quote:

Originally Posted by stevelb Proceeds will be $11,000. Interest is $1000, as I said taxed at 22%. Therefore 10,780 left to invest at new rate...let's assume 5%. How long to pull ahead of just leaving the $11,00 bond alone... again just assuming the rate stays at 3.38%. Thanks.

You are ahead from day one. Again, whether you pay the tax now or later, it is owed. If you want to figure how long it takes to earn the $220 you'll pay in tax re-investing above the 3.38% (assuming that is the same rate at Nov re-rate), simply figure how long it takes to make $220 at 1.62% (5% minus 3.38%) on your new $10,780 5% investment. Looks like about 15 months going by rough estimates.

[JARON46]

I Bonds deferred tax on the interest is a good thing if you expect to be in a lower tax bracket once you start cashing the I Bonds in. But if you have a nice income in retirement and are already in the 22% bracket and its time to cash the I Bonds in it could push you into a even higher bracket plus IRMAA, which has happened to me.

[yhoomajor]

Also, one can use i-bonds to pay for college tuition. Tax free.

https://www.treasurydirect.gov/savin...her-education/ (some AGI limits apply)

[pb4uski]

Quote:

Originally Posted by njhowie You are ahead from day one. Again, whether you pay the tax now or later, it is owed. If you want to figure how long it takes to earn the $220 you'll pay in tax re-investing above the 3.38% (assuming that is the same rate at Nov re-rate), simply figure how long it takes to make $220 at 1.62% (5% minus 3.38%) on your new $10,780 5% investment. Looks like about 15 months going by rough estimates.

+1 but the more relevant question is how many months it takes for you to recover the 3-month of interest penalty. At 3.38% the penalty would be 0.845% (3.38%/12*3). You will be gaining 0.135%/month (5%-3.38%)/12 so it will take about 6-7 month at the higher rate to earn back the penalty.

[JARON46]

Quote:

Originally Posted by yhoomajor Also, one can use i-bonds to pay for college tuition. Tax free. https://www.treasurydirect.gov/savin...her-education/ (some AGI limits apply)

But using I Bonds to pay for higher education is means tested. If your income is over about $125,000 (not actually sure about this number) filing jointly (not taxable income) you cannot use the deferred interest to pay for education tax free.

[Drake3287]

I think the Feds are seeing or are about to see a mass selling of these I bonds, myself included probably in October. Almost a no brainer when you can get CD's for over 5% currently. I think we all knew these I bonds were going to be a short term investment.

[Gumby]

I intend to sell our I-bonds starting on September 2nd, when our oldest ones (purchased in December 2021) will have earned out all of the 6.48% rate, and then monthly thereafter (which is how I bought them). While I would like to sell the ones purchased in March 2022 on 12/2/23, I will have to wait until 1/2/24, because they are still in the gift box. We will still have $20k in the gift box that cannot be delivered and cashed out until 1/25.

I will likely buy 1 year treasuries with the proceeds.

[Mulligan]

Quote:

Originally Posted by Drake3287 I think the Feds are seeing or are about to see a mass selling of these I bonds, myself included probably in October. Almost a no brainer when you can get CD's for over 5% currently. I think we all knew these I bonds were going to be a short term investment.

It depends on actual purpose and what designation the monies are slotted for. For the quick yield grab, or short term monies, yes its time to fly. And a lot will I suspect as you mentioned. But for ones that are wanting them for longer term, for whatever reason, they are becoming better relative buys. If yields hold where they are at, and inflations stays down, the fixed is going to fly over 1%.

[mrfeh]

Quote:

Originally Posted by Drake3287 I think the Feds are seeing or are about to see a mass selling of these I bonds, myself included probably in October. Almost a no brainer when you can get CD's for over 5% currently. I think we all knew these I bonds were going to be a short term investment.

Except for those that have been buying them for many, many years as part of their long term holdings.

[Fermion]

I am at the 12 week mark now for trying to sell my paper bonds (get them converted to electronic).

Absolutely horrible customer service the government has!

[audreyh1]

Quote:

Originally Posted by Drake3287 I think the Feds are seeing or are about to see a mass selling of these I bonds, myself included probably in October. Almost a no brainer when you can get CD's for over 5% currently. I think we all knew these I bonds were going to be a short term investment.

Quote:

Originally Posted by mrfeh Except for those that have been buying them for many, many years as part of their long term holdings.

+1
I just leave the IBonds untouched long term unless they have a 0% or very low fixed rate.

[enjoyinglife102]

I'd sell them at the first opportunity that the 3 month interest penalty isn't that big of a hit. As I get further in retirement, simplifying my portfolio is what I'm striving to do. An investment limited to 10k once a year isn't impactful and thus not worth my time and effort.

[Chuckanut]

Quote:

Originally Posted by audreyh1 +1 I just leave the IBonds untouched long term unless they have a 0% or very low fixed rate.

+1

Selling them and buying shorter term Treasuries or CDs does not make for a good inflation protection plan.

I may sell the older bond that earn a fixed rate of 0%, and replace them with the higher fixed rate bonds we currently have. Who knows, maybe bonds will see another boost in the fixed rate later this year.

[euro]

Quote:

Originally Posted by Fermion I am at the 12 week mark now for trying to sell my paper bonds (get them converted to electronic). Absolutely horrible customer service the government has!

I think 10-12 weeks is pretty much what they tell you upfront it might take, so you are not yet in unprecedented territory. Yes, this is slow as molasses by most modern standards, but at least this is known upfront. Now, if you wait another 3 months and still nothing happens, it is time to get nervous....

[audreyh1]

Quote:

Originally Posted by Chuckanut +1 Selling them and buying shorter term Treasuries or CDs does not make for a good inflation protection plan. I may sell the older bond that earn a fixed rate of 0%, and replace them with the higher fixed rate bonds we currently have. Who knows, maybe bonds will see another boost in the fixed rate later this year.

Right, it’s inflation hedged cash so I buy when the fixed rate goes higher and generally leave them alone except for replacing 0% fixed rate.

The first year, 2003, we were able to buy $60K worth. So overall it’s a pretty good chunk even though I don’t buy every year, only when it gets “interesting”.

[Cayman]

Purchased as an inflation hedge. Keeping our ibonds except to replace 0% fixed rate. Equities are ~40% of portfolio.