Sell I Bonds....or not?
- Thread starter stevelb
- Start date
njhowie
Thinks s/he gets paid by the post
- Joined
- Mar 11, 2012
- Messages
- 3,935
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.
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.
Last edited:
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Need more info... like the proceeds and your initial investment because the difference is the interest that will be taxed at 22%.
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
Thinks s/he gets paid by the post
- Joined
- Mar 11, 2012
- Messages
- 3,935
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.
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.
Also, one can use i-bonds to pay for college tuition. Tax free.
https://www.treasurydirect.gov/savi...-ee-i-bonds/using-bonds-for-higher-education/ (some AGI limits apply)
https://www.treasurydirect.gov/savi...-ee-i-bonds/using-bonds-for-higher-education/ (some AGI limits apply)
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+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.
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.
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.
- Joined
- Apr 14, 2006
- Messages
- 23,274
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.
I will likely buy 1 year treasuries with the proceeds.
Mulligan
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- May 3, 2009
- Messages
- 9,343
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%.
Except for those that have been buying them for many, many years as part of their long term holdings.
audreyh1
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+1
I just leave the IBonds untouched long term unless they have a 0% or very low fixed rate.
enjoyinglife102
Recycles dryer sheets
- Joined
- Jan 6, 2013
- Messages
- 162
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
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+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.
Last edited:
euro
Thinks s/he gets paid by the post
- Joined
- Oct 4, 2015
- Messages
- 2,352
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
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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”.
Last edited:
Cayman
Recycles dryer sheets
- Joined
- Nov 14, 2015
- Messages
- 447
Purchased as an inflation hedge. Keeping our ibonds except to replace 0% fixed rate. Equities are ~40% of portfolio.
We bought $60K in both 2001 and 2003, the next ones was a tax refund in 2013. Plan to redeem the 2013 ones this fall.
But check the current value of the 2001 I bonds! Time to start an exit strategy as the accrued interest and taxes will hurt if I wait until 2031
Sold my 11/2021 I bonds today. First time I've ever sold my I bonds. Easy peasy. Will reinvest at higher rates.
Still have plenty of I bonds but will consider buying again if it makes sense for my situation.
Still have plenty of I bonds but will consider buying again if it makes sense for my situation.
Last edited:
calmloki
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
You are brave - thanks for testing though. I'd planned to wait till tomorrow, did you get the 3-month penalization on only the lower rate months?
Honestly, this is still confusing to me. It said my rate was 3.68% months ago but it paid me the previous 6%+ through July. I went back and verified I received the 6%+ rate for six months, so I assumed next month it would have started paying the 3.68%.
It pays you exactly what it shows your current balance is, although it will be 2 business days before it shows up in my checking account.
I had asked, in this thread I believe, when I should sell and was told August 1st. When I confirmed I got the full 6 months of 6%+ and it matched exactly what I expected I sold
Last edited:
