Article: The Secret Is Out on 7.12% Inflation-Protected Bonds

[steelyman]

Worst case is that you sell the bond if the overall rate is not competitive.

I’ve held off for iBonds until last month. With the limited amounts, I’m not going to worry too much about maximizing the rate. I’ll look for that with equities. Instead if my basket of iBonds is reasonably competitive to other FI alternatives, I’ll be happy.

I understand. I’m not one of those who bought in earlier years with better fixed components. My earliest I Bond is from 2015 and has a fixed rate of zero just like today. It is, however, redeemable without an interest penalty.

I’ll see what happens in May and keep the funds in a credit union savings account until then. I’m pretty good at “boring”.

 

[Dash man]

In order for me to fund the I bond purchase I will have to sell in my taxable account. I currently have 65k in LTCG for this year along with my wife SS of 21k and 3k in dividends. That allows me to convert aprox. 22k to get to the top of the 12% bracket for this year.



In order to fund the I bond purchase I would have to sell more stock in our taxable account leading to more capital gains. Although now that i think about it a 20k sale of stock would only be 15k of LTCG. So I guess I have 5k available staying in the 12% bracket.



Is my rational correct?

Well, if you sell $20k of stock you will pay 15%, or $3,000 in tax. But to sell stock and pay the tax just for the current rate of the iBonds, which is only guaranteed for six months, may not be the best idea.

 

[walkinwood]

This has me intrigued now.. but I have a couple of questions
- Can you link treasurydirect to a vanguard brokerage account? Or does it have to be a bank (routing # etc)


- Do I need separate treasurydirect accounts to invest the max in I-bonds for me & my spouse?


Thanks.

 

[Gumby]

When I opened an account on Friday, they asked for a routing number, so I presume the answer is that it must be a checking account at a bank. It also asked for a social security number, and I understand the $10k per year limit to be per social security number, so I opened separate accounts for the young wife and me. I bought $10k in each account.

Maybe you can figure out how to do it otherwise, but that seemed the simplest to me, so that's what I did.

 

[braumeister]

You're right. Every owner of an I-bond must have their own account.

 

[Luvtoride]

A piece of that is mine. I have a stack of paper EE bonds in the safe that mature each year. I recall they were purchased via Mega Corp payroll deductions at 50 percent of face value.

Yes, I remember the days doing that in my kids names and having stacks of those EE bonds. A real pain in the neck if you ask me TODAY, but a good way for forcing savings back then.
I read the article about the Series I bonds today too (different source) and was wondering what the catch was until I got to the $10,000 annual limit. Still, if you start this time of year, you can do $20k (10k each in 2021 and 2022). Also interesting that you can buy them with up to $5,000 of IRS tax refund money.
Who cares about WHY the government is issuing them. Where else are you going to get 7%+ interest and tax deferral?
I'm in!

 

[finnski1]

I read an article (that I no longer can find), that indicated you could get a lot more into I-Bonds than the usual publicized limit. It had to do with hitting the limit for both self and spouse (easy), hitting the limit for trusts (at least I think that's what it said), and also overpaying your taxes, and instead of a refund, getting and I-bond funded from that. It seemed too tedious for me, though.

Yeah actually you could do up to $65k per year for a couple.
$10k each

$10k each if you both had a trust
$10k each if you had a by business(simple LLC would do) account and then the $5k paper version from your tax return.
I had an LLC for years in NH here that cost me $102 /year to do my annual report(just listing me as the member) and probably could use that.
I only went for the $20k total for us individually.
https://thefinancebuff.com/how-to-buy-i-bonds.html

 

[misanman]

- Can you link treasurydirect to a vanguard brokerage account? Or does it have to be a bank (routing # etc)

I may be able to help with this. Just this morning I was checking into how to pull funds from my Fidelity CMA account. I noticed there is a "Routing Number" link on the account summary page. Clicking on that link displayed the routing number and the account number. I assume Vanguard would have something equivalent.

Edited to add: I ran into a problem later, though. Treasury Direct is very fussy about adding or editing the bank account info. If you already have an account defined, it won't let you change or add another account without submitting a form by mail that you have signature certified at a local bank. I didn't want to go through the hassle at this point so I will continue to do two transfers, one to load money to my bank account and another for the TD transaction.

 

[Chuckanut]

Yes, I remember the days doing that in my kids names and having stacks of those EE bonds. A real pain in the neck if you ask me TODAY, but a good way for forcing savings back then.
I read the article about the Series I bonds today too (different source) and was wondering what the catch was until I got to the $10,000 annual limit. Still, if you start this time of year, you can do $20k (10k each in 2021 and 2022). Also interesting that you can buy them with up to $5,000 of IRS tax refund money.
Who cares about WHY the government is issuing them. Where else are you going to get 7%+ interest and tax deferral?
I'm in!

And in a bit more than four years one can have $100,000 in I Bonds. Not bad. I am reminded of the saying - The best time to plant a tree was 30 years ago. The next best time is today.

 

[walkinwood]

- Can you link treasurydirect to a vanguard brokerage account? Or does it have to be a bank (routing # etc)

I asked Vanguard and this was their respons

Thank you for taking the time to contact us. Since Vanguard is not a bank, our brokerage accounts do not have routing numbers associated with them. We apologize for any inconvenience this may cause you. Sincerely,

There may be a way around this by going the "Direct Deposit" route if that allows a two-way transfer. But it is more trouble than I want to endure.

 

[LaDolceVita]

IBonds

Hello All,

I have seen IBonds mentioned here as a place to park conservative, long-term funds. As they currently pay 7.12%, it would seem to me that this exceeds other types of treasuries, money market returns, etc. by far. I understand that this return is not guaranteed past 6 months, but looking at the IBond history, it looks like it has paid pretty well over the last few decades.

After doing some research, I see that the IBond gains are also tax-deferred; i.e. you don’t have to pay taxes on the gains until you cash in the IBond. I also believe I understand the caveats of cashing them in early (i.e. you can’t cash them in before 1 year, and you sacrifice 3 months of interest if you cash them in between years 2-5). I also understand that the inflation part is variable and is recomputed every 6 months in November and May, and that the fixed part is currently at 0. I also understand that the maximum you can purchase per year is 10K, and up to an additional 5K from any tax return funds you receive.

Understanding all that, assuming I am at a reasonably low tax bracket now, what would be the downside of cashing out 10K of pre-tax IRA or 401K funds per year, paying the taxes on it, and reinvesting the 10K in IBonds through TreasuryDirect? It seems like tax-wise the gains can be managed in the same way (i.e. taxes can be deferred), but the returns would potentially far exceed the returns from the “safe” cash I currently hold in my 401K.

Thanks in advance for any of your experiences and/or words of wisdom on this.

 

[Aerides]

Ongoing discussion on Ibonds - merging threads.

 

[njhowie]

Hello All,

I have seen IBonds mentioned here as a place to park conservative, long-term funds. As they currently pay 7.12%, it would seem to me that this exceeds other types of treasuries, money market returns, etc. by far. I understand that this return is not guaranteed past 6 months, but looking at the IBond history, it looks like it has paid pretty well over the last few decades.

After doing some research, I see that the IBond gains are also tax-deferred; i.e. you don’t have to pay taxes on the gains until you cash in the IBond. I also believe I understand the caveats of cashing them in early (i.e. you can’t cash them in before 1 year, and you sacrifice 3 months of interest if you cash them in between years 2-5). I also understand that the inflation part is variable and is recomputed every 6 months in November and May, and that the fixed part is currently at 0. I also understand that the maximum you can purchase per year is 10K, and up to an additional 5K from any tax return funds you receive.

Understanding all that, assuming I am at a reasonably low tax bracket now, what would be the downside of cashing out 10K of pre-tax IRA or 401K funds per year, paying the taxes on it, and reinvesting the 10K in IBonds through TreasuryDirect? It seems like tax-wise the gains can be managed in the same way (i.e. taxes can be deferred), but the returns would potentially far exceed the returns from the “safe” cash I currently hold in my 401K.

Thanks in advance for any of your experiences and/or words of wisdom on this.

You understand everything about I Bonds very well.

As far as pre-tax IRA or 401K money, how old are you at this time? Over 59 1/2? If so, then there really is no downside to your plan, assuming you are just looking for another holding pen for your safe money.

 

[11522914]

Right now I am thinking of the I Bond as a far more profitable substitute for a 1-2 year Bank CD. That makes sense to me at this time. Depending what happens with the inflation rate and interest rates, I might start thinking of today's I Bond purchase as a longer term CD. Or maybe not. With the Fed holding down interest rates to well below the inflation rate, I want options. The I Bond is one of those options.
My 2¢. YMMV.

This is exactly how I view it too.

 

[Koolau]

I've tried a couple of times to open an account and have given up. Not sure what happens to my paper I-bonds.

 

[Sunset]

Yeah actually you could do up to $65k per year for a couple.
$10k each

$10k each if you both had a trust
$10k each if you had a by business(simple LLC would do) account and then the $5k paper version from your tax return.
I had an LLC for years in NH here that cost me $102 /year to do my annual report(just listing me as the member) and probably could use that.
I only went for the $20k total for us individually.
https://thefinancebuff.com/how-to-buy-i-bonds.html

Your business does not have to be an LLC, it can be a sole proprietorship, I know as I did it.
There was a link early in this thread that explained how to open an entity account.