Ibonds when to stop buying?

[SJhawkins]

Ibonds started out as place to hold an emergency fund, then a spot to pick up some tax advantage space, now it's looking like a nice little pile to cover some early retirement income being in my mid 50s.

As it stands today ibonds will cover a good 3 years of spending. Ibonds plus income from the other pile (stocks, typical bonds) could probably get us to SS age 10-15 years from today.

Planning on buying again in 2024, probably will keep buying while still working for another 2-3 years but after that I'm not sure.

In other words, when is enough enough?

A side note I like ibonds for place to kind of set it and forget it, could do better probably but I'm lazy, what can I say.

 

[mystang52]

Over many many years I had accumulated a very large amount of EE and I bonds. Other than the recent time when I Bonds were paying very high rates, I have not bought I Bonds in a long time. FWIW, I will soon be getting a nice windfall, and plan on laddering some Treasuries - like I Bonds, no state tax, guaranteed by Uncle Sam, and liquid. Their rates are better, so that's the approach I will be taking.

 

[audreyh1]

Well, I go through long periods of not buying them, then the rates pop and I can’t resist.

 

[Gumby]

I have been unwinding our I-Bond position. We redeemed $20k (plus accrued interest) in each of September, October and November this year, and are now down to $20k in the gift box to redeem 1/1/24 and another $20k in the gift box to redeem on 1/1/25. We will likely buy $20k for the gift box in April 2024 to capture the current 5.27% (which includes 1.3% fixed), which we will hold until at least 1/1/26. I am hopeful that the fixed rate might increase in May even if the variable drops and that I can buy another $20k in October 2024 to be held until 1/1/27 at least, but we shall see.

 

[pb4uski]

I'm unwinding my similar to you first 2 sentences above, but not buy more, mostly because I'm trying to simplify and reduce the number of accounts we have and wean ourselves from Treasury Direct, which I view as an inferior platform. We can buy TIPS instead in our brokerage accounts with more simplicity.

 

[SJhawkins]

I'm unwinding my similar to you first 2 sentences above, but not buy more, mostly because I'm trying to simplify and reduce the number of accounts we have and wean ourselves from Treasury Direct, which I view as an inferior platform. We can buy TIPS instead in our brokerage accounts with more simplicity.

This is somewhat what I have been thinking about and or loosely trying to develop a plan around. Getting rid of the his and hers TD accounts by some date, current thinking is to have them closed when we hit SS time. At the very least down to one account anyway.

 

[Gumby]

Treasury Direct is not the best website, but I have never experienced a problem with doing what I need to do. I don't find the his and her accounts to be much of a problem either. We each have our own Roth, tIRA, 457, 401k and 403b accounts. In fact, our bank account and taxable brokerage account are the only joint ones.

I'm also shifting from considering I-Bonds as merely the best place to invest any current cash (as was the case from late 2021 until mid 2023) to considering them as a long term place to keep emergency funds inflation protected, with a modest fixed return as well. Although I doubt we will get back up to the I-Bond balance we had in April 2022. And, if inflation rears its head again and drives variable rates up to scrumptious levels, it will be easier if we already have some I-Bonds and don't need to rely so much on the gift box strategy

 

[joesxm3]

My I bonds from 2000 to 2003 are going to make the RMD tax torpedo look like a fire cracker. I have a few years to figure what to do but it is going to hurt.

 

[mrfeh]

I'll stop when all of my TIPS space is nothing but I Bonds.

 

[pb4uski]

My I bonds from 2000 to 2003 are going to make the RMD tax torpedo look like a fire cracker. I have a few years to figure what to do but it is going to hurt.

You can do as little or as much as you want. I've never researched it but wouldn't they get a stepped up basis? If so, wouldn't the firecracker end up being a dud?

 

[Gumby]

I bonds mature at 30 years. So if joesxm is taking RMDs in 2030-2033 and has not been paying taxes every year on I-Bond interest, he will get all the accrued interest from the I-bonds (which can only be held in a taxable account) at the same time he is taking RMDs. Which will make the the tax torpedo of RMDs even worse. I don't think there is any basis change in I-bonds. You just pay tax on all the accrued interest (as ordinary income) when you redeem them.

At least, that is my interpretation.

 

[audreyh1]

Well, for one thing it’s only for 4 years in the worst case.

But there is flexibility, he can spread it out over more years if that helps reduce the burden.

You can do partial redemptions. He could even start partial redemptions now if that would reduce a worse future tax and IRMAA burden. Take what he can before RMDs hit.

 

[Accidental Retiree]

You can do partial redemptions. He could even start partial redemptions now if that would reduce a worse future tax and IRMAA burden. Take what he can before RMDs hit.

I have tried this out within the clutch I of IBonds we started purchasing back in 2021 when the feeding frenzy started. I just wanted to see how the process works.

I partially redeemed by taking interest that’s been in the 3.38% range for over 3 months; taking a $1272 interest withdrawal, we will owe taxes only on a prorated amount of $145 and change.

We are gift boxed out through 2025 in our individual accounts, like a few other people here, but plan to continue purchases for our trust account to take advantage of the higher fixed rates, which none of our earlier purchases have.

 

[erkevin]

I have been unwinding our I-Bond position. We redeemed $20k (plus accrued interest) in each of September, October and November this year, and are now down to $20k in the gift box to redeem 1/1/24 and another $20k in the gift box to redeem on 1/1/25. We will likely buy $20k for the gift box in April 2024 to capture the current 5.27% (which includes 1.3% fixed), which we will hold until at least 1/1/26. I am hopeful that the fixed rate might increase in May even if the variable drops and that I can buy another $20k in October 2024 to be held until 1/1/27 at least, but we shall see.

We also had $20k to deliver come January 1, 2024. I was curious to see how it would be handled; I delivered them two weeks ago (about a month early). TD delivered them. Under "gift and transfer activity", the website shows two $20k gifts delivered in 2023 for both my wife's and my accounts. Maybe there is an early window of acceptance?

 

[Gumby]

You exceeded the $10k annual maximum that a person can receive as a gift and/or purchase for themselves. You may hear from Treasury about this delivery (or maybe not). I am unaware of any "month early" exception.

I'm curious as to why you didn't wait until 1/1/24.

 

[erkevin]

I was just curious about how TD would handle an early delivery (maybe I was bored!). I delivered them in late November and havent heard a word or had them rejected. The other $10k was purchased in January, 2023.

 

[pb4uski]

I bonds mature at 30 years. So if joesxm is taking RMDs in 2030-2033 and has not been paying taxes every year on I-Bond interest, he will get all the accrued interest from the I-bonds (which can only be held in a taxable account) at the same time he is taking RMDs. Which will make the the tax torpedo of RMDs even worse. I don't think there is any basis change in I-bonds. You just pay tax on all the accrued interest (as ordinary income) when you redeem them.

At least, that is my interpretation.

Good point... I forgot about the 30 year maturity and that he had bought his long ago.

And no basis change.

 

[audreyh1]

I have tried this out within the clutch I of IBonds we started purchasing back in 2021 when the feeding frenzy started. I just wanted to see how the process works.

I partially redeemed by taking interest that’s been in the 3.38% range for over 3 months; taking a $1272 interest withdrawal, we will owe taxes only on a prorated amount of $145 and change.

Yes, it’s important to note that partial redemptions are pro-rated.

You also have to go to the Treasury Direct site to get your 1099-INT in January, they don’t mail them.

 

[Gumby]

I was just curious about how TD would handle an early delivery (maybe I was bored!). I delivered them in late November and havent heard a word or had them rejected. The other $10k was purchased in January, 2023.

I guess I am just too much of a rule follower to try it.

 

[Chuckanut]

I am keeping my Ibonds as an inflation protected emergency fund. And, a buffer against inflation in the case it comes roaring back at some point. But, I will use TIPS for most of the inflation protection.

I like the idea that I can't lose money or go backwards in value with Ibonds (except within years 1-5). And I can basically adjust my personal maturity of the bond from one to 30 years as I see fit.

Yes, a tax torpedo could do some damage, IRMAA might raise its ugly head, but that's a good problem to have. I've done all I can to minimize future tax torpedos, short of finding a way to fix my time machine so I can travel into the future to see what happens in the financial markets.

 

[joesxm3]

I might cash some in a year or two early to spread the pain, but the ones I need to cash have a juicy interest rate right now.

I will figure this more next year as I have done Roth conversions for 2020.

If I were starting over I would look into paying tax annually from taxable cash.

 

[OldShooter]

... In other words, when is enough enough?
...

It seems most here get wrapped up in looking at yields vs other govvies, etc. I just don't look at I bonds or TIPS that way. To me, they are protection against catastrophic inflation, which we actually had a brush with recently. Did you enjoy it? Me neither.

So my answer to your question is: Stop when you feel you have enough inflation protection. I think this leads to a far larger number than the 5%-of-portfolio that is often mentioned.

In our case, we decided that the biggest threat to our retirement was inflation like we saw in the late 70s, early 80s. So we invested very serious six figures in TIPS in 2006, the 2s of 26 to be specific, and have been holding them since. So in a couple of years we'll have to decide how much inflation risk we still have and how much protection we want.

 

[pb4uski]

I guess I am just too much of a rule follower to try it.

Me too, though I'll admit to wondering what would happen if I did our planned 2024 and 2025 gifts all on 1/1/24 and then instantly redeemed them rather than wait until 1/1/25 for the last one.

 

[jollystomper]

We have $20K in gifts (10k in each of our accounts) that I will deliver and sell in January, as they are now beyond the 3 month 3.38% interest period. I will purchase $20K in gifts for 2025 at the end of January to get the 5.27% rate.

All of our other I Bonds have a 0% fixed rate, so I January I will take a close look to decide how many to sell and when. I will have to decide how far out I want to gift for, vs. moving more into Treasuries. I might wait to until the new rate comes out in April to make that long term decision.

 

[steelyman]

I’ll make my first-ever sale of I Bonds in January. Proceeds will be reinvested in new ones at a better fixed rate than 0%. The tax on interest is fine with me.

How exciting!