I-Bond Rate - Pinch Me

[joesxm3]

I was just updating my spreadsheet and I noticed that my 7/2000 Series I Savings Bonds are paying 7.00%. And the 1/2001 bonds are paying 6.80%.

I am going to get clobbered by the tax in 2030, but I find it hard to cash them early at this rate. $5000 bond bought in July 2000 is worth $24,722 today. That is a CAGR of 6.35%.

 

[Koolau]

I was just updating my spreadsheet and I noticed that my 7/2000 Series I Savings Bonds are paying 7.00%. And the 1/2001 bonds are paying 6.80%.

I am going to get clobbered by the tax in 2030, but I find it hard to cash them early at this rate. $5000 bond bought in July 2000 is worth $24,722 today. That is a CAGR of 6.35%.

Heh, heh, don't you wish you'd bought the (I think) max allowed $30K of I-bonds back then?

In for a dime, in for a dollar!

Here's to our First World problems.

 

[QG67PK00]

I was just updating my spreadsheet and I noticed that my 7/2000 Series I Savings Bonds are paying 7.00%. And the 1/2001 bonds are paying 6.80%.

I am going to get clobbered by the tax in 2030, but I find it hard to cash them early at this rate. $5000 bond bought in July 2000 is worth $24,722 today. That is a CAGR of 6.35%.

You can convert your paper bonds to electronic bonds at TreasuryDirect and then you can redeem them in any amount over the next few years, thereby spreading your tax burden across many years..

 

[Koolau]

You can convert your paper bonds to electronic bonds at TreasuryDirect and then you can redeem them in any amount over the next few years, thereby spreading your tax burden across many years..

From what I can tell, converting is the only way to redeem them. At least it must be done through TD. Banks who used to sell them don't redeem them anymore.

 

[joesxm3]

Heh, heh, don't you wish you'd bought the (I think) max allowed $30K of I-bonds back then?

In for a dime, in for a dollar!

Here's to our First World problems.

I did buy all $30,000 back when I could .

I caught the tail end of the really good deals.

I will probably have to convert them, but a year or two ago when I asked BOA they said they would cash up to five at a time.

 

[Texas Proud]

From what I can tell, converting is the only way to redeem them. At least it must be done through TD. Banks who used to sell them don't redeem them anymore.

If the same as regular savings bonds you can just cash them in by mailing and asking them to be cashed... that is what I did...

 

[junkanoo]

You can convert your paper bonds to electronic bonds at TreasuryDirect and then you can redeem them in any amount over the next few years, thereby spreading your tax burden across many years..

Yeah, but someone getting 7% would miss out on those safe returns. If they are into the 22% bracket, that's still an after-tax return of 5.46%. Naturally, tax-free by your state. Where are they going to get that? Perhaps a better option is to sell half in 2030, and half early in 2031 (when no additional interest is heading your way). At least you've split it among two years with little or no downside.

I chose to pay the interest every year to avoid this and potential IRMAA issues. However, this option needs to be selected upfront.

 

[Chuckanut]

You can convert your paper bonds to electronic bonds at TreasuryDirect and then you can redeem them in any amount over the next few years, thereby spreading your tax burden across many years..

That may be a good plan for the OP and should be considered.

However, having to give up an ultra safe 7% return due to tax considerations has to be painful. I know a fellow who cashed in some of his bonds last year to repair and update his house. He got hit with IRMA, a big increase in his monthly Medicare payment. I suggested he appeal that, but have not heard anything further.

 

[QG67PK00]

Yeah, but someone getting 7% would miss out on those safe returns. If they are into the 22% bracket, that's still an after-tax return of 5.46%. Naturally, tax-free by your state. Where are they going to get that? Perhaps a better option is to sell half in 2030, and half early in 2031 (when no additional interest is heading your way). At least you've split it among two years with little or no downside.

I chose to pay the interest every year to avoid this and potential IRMAA issues. However, this option needs to be selected upfront.

You are now getting 7% because the fixed rate was 3.5% in the year 2000. Your total rate is approximately equal to fixed rate + inflation rate. Assuming that inflation will stay similar to or rise from what it is today (around 3.25%), you are not really losing by redeeming in small chunks over the next few years. You might actually be able to ride the inflation increases from today to 2030..

 

[joesxm3]

Yeah, but someone getting 7% would miss out on those safe returns. If they are into the 22% bracket, that's still an after-tax return of 5.46%. Naturally, tax-free by your state. Where are they going to get that? Perhaps a better option is to sell half in 2030, and half early in 2031 (when no additional interest is heading your way). At least you've split it among two years with little or no downside.

I chose to pay the interest every year to avoid this and potential IRMAA issues. However, this option needs to be selected upfront.

I wish I had selected to pay interest every year, but by the time I realized I had too much back interest and paying all that at once would kill me. Also, for most of the first 16 years I was in a high tax rate.

I probably will have to sell some early to avoid being in the 32% range. I am a single filer so that makes it more challenging. Maybe I should get married

As far as selling half in 2031, my problem is I also bought bonds in 2001 and 2002. I guess that is a nice problem to have.

But, clearly, I would have been better off had I selected to pay interest annually. Of course I would have also lost out on the tax-deferred compounding which probably created my current problem.

 

[Livefree]

I have Ibonds from 1999 and have just started to cash a few. I found a bank near me (Cambridge Savings) that cashes them. I did a search on Reddit and it listed banks that still cash them and found that bank. Otherwise they need to be mailed to the Treasury to redeem, if they're paper bonds like mine.

 

[junkanoo]

I wish I had selected to pay interest every year, but by the time I realized I had too much back interest and paying all that at once would kill me. Also, for most of the first 16 years I was in a high tax rate.

I probably will have to sell some early to avoid being in the 32% range. I am a single filer so that makes it more challenging. Maybe I should get married

I think your best approach is to die before 2030 and have a charity listed as the payable-on-death (POD).

This way, your estate doesn't pay taxes on this nor will the charity.

That will teach them.

 

[Livefree]

Yeah, but someone getting 7% would miss out on those safe returns. If they are into the 22% bracket, that's still an after-tax return of 5.46%. Naturally, tax-free by your state. Where are they going to get that? Perhaps a better option is to sell half in 2030, and half early in 2031 (when no additional interest is heading your way). At least you've split it among two years with little or no downside.

I chose to pay the interest every year to avoid this and potential IRMAA issues. However, this option needs to be selected upfront.

I was planning on doing this too, but it seems all the tax is due when they mature.
see#2205 and #2208

The I Bond Thread

I also have Ibonds from 1999 that I'm reluctant to redeem yet. According to Quicken they are averaging 7% so far. My plan is to redeem half of them in 2029 (30 years) around December and the other half in January to split the tax bill owed.

www.early-retirement.org

 

[Al18]

Sell some in 2028, 2029 and 2030

 

[audreyh1]

I was planning on doing this too, but it seems all the tax is due when they mature.
see#2205 and #2208

The I Bond Thread

I also have Ibonds from 1999 that I'm reluctant to redeem yet. According to Quicken they are averaging 7% so far. My plan is to redeem half of them in 2029 (30 years) around December and the other half in January to split the tax bill owed.

www.early-retirement.org

That is correct. Tax is due for the year it matures.

For my big one I plan on pulling out smaller amounts over maybe 3 years up until the year it matures.

 

[junkanoo]

I was planning on doing this too, but it seems all the tax is due when they mature.
see#2205 and #2208

The I Bond Thread

I also have Ibonds from 1999 that I'm reluctant to redeem yet. According to Quicken they are averaging 7% so far. My plan is to redeem half of them in 2029 (30 years) around December and the other half in January to split the tax bill owed.

www.early-retirement.org

Ah. Thanks for the correction.

 

[Koolau]

I wish I had selected to pay interest every year, but by the time I realized I had too much back interest and paying all that at once would kill me. Also, for most of the first 16 years I was in a high tax rate.

I probably will have to sell some early to avoid being in the 32% range. I am a single filer so that makes it more challenging. Maybe I should get married

As far as selling half in 2031, my problem is I also bought bonds in 2001 and 2002. I guess that is a nice problem to have.

But, clearly, I would have been better off had I selected to pay interest annually. Of course I would have also lost out on the tax-deferred compounding which probably created my current problem.

I suppose you could get married...

I have until 2033 to "get rid" of my I-bonds (well, most of them - I have a smaller tranche which expire around 2040). Of course, none of these carry that amazing interest rate of the 2000 series.

What great problems we have to deal with!