The I Bond Thread

[Magus]

Chuck - yup - I'm glad I-bonds exist but I wish inflation was at 2% rather than the 10%+ that it actually is (OER, ~25% of the index, is still being calculated at 4.5% which is an absolute joke). Negative real yields of 6-7%+ for US bonds right now is downright awful for savers and those that want steady income. I-Bonds only offer so much protection once you get past a certain net worth and will never make you rich, since by definition are basically just keeping up with inflation.

 

[audreyh1]

Yes, 9.62%

Wow!

 

[shotgunner]

I am very happy to be sitting on about $97K of I Bonds with a fixed rate of 1%. With an upcoming 6 month return of 10.62% I feel like it's 1979 again. I purchased $60K in April 2005 when you could by $30K in paper and another $30K electronic.

I had multiple reasons for purchasing them including the fact that interest on government securities is not subject to the state of NH Interest and Dividend Tax of 5%.

I have just recently started to very slowly unwind my position in them two years ago because of the fact they stop earning interest after 30 years (now 13 years away). I didn't want to get to point where the lump sum value stopped earning interest and be forced to sell all them and incurring a huge spike of interest income when they mature in 4/2035 at age 78.

Perhaps I will leave them alone and see where interest rates go in the next couple of years instead.

 

[Phroig]

If I buy some as a gift for my child to be delivered next year, does that count against this year's gift tax exclusion limit or next year's?

 

[MuirWannabe]

Is it possible to still buy these associated with the year 2021? And then after April 15th be able to buy again for year 2022?

 

[MandM]

Is it possible to still buy these associated with the year 2021? And then after April 15th be able to buy again for year 2022?

No, this is not like an IRA. It works on calendar year only. You can purchase as gifts to be delivered in future years as discussed in previous posts.

 

[Henry Lili]

So to clarify re: timing/benefit of I-Bond purchase now(April) rather then waiting until May. If I were to buy before the end of April, rather then wait until May 1st, I'd get the 7.12% current annualized inflation kicker for six months and then the new estimated ~9% for the following six months given the next rate update isn't until November 1st thus "locking in" a roughly 8% annual return?

 

[Gumby]

So to clarify re: timing/benefit of I-Bond purchase now(April) rather then waiting until May. If I were to buy before the end of April, rather then wait until May 1st, I'd get the 7.12% current annualized inflation kicker for six months and then the new estimated ~9% for the following six months given the next rate update isn't until November 1st thus "locking in" a roughly 8% annual return?

Actually, with the May 1, 2022 reset rate being 9.62%, you're locking in about 8.54% for one year (but remember that you would need to hold 15 months and lose the last three months of interest.)

 

[Dash man]

So to clarify re: timing/benefit of I-Bond purchase now(April) rather then waiting until May. If I were to buy before the end of April, rather then wait until May 1st, I'd get the 7.12% current annualized inflation kicker for six months and then the new estimated ~9% for the following six months given the next rate update isn't until November 1st thus "locking in" a roughly 8% annual return?

Yes, but if you cash it in one year up until five years, you will lose three months interest.

 

[Fermion]

Actually, with the May 1, 2022 reset rate being 9.62%, you're locking in about 8.54% for one year (but remember that you would need to hold 15 months and lose the last three months of interest.)

compare to the current rate on a 15 month CD...about 1.1% LOL

 

[Mulligan]

Yes, but if you cash it in one year up until five years, you will lose three months interest.

If you deposit the last week of the month it wont be a 3 month penalty since you get 3 weeks worth of interest in something hadnt even deposited yet. I did, it makes me feel like the penalty isnt so penal now.

 

[Chuckanut]

compare to the current rate on a 15 month CD...about 1.1% LOL

Beats the shirt, pants and underwear off the CD, but please a fairer comparison would be with a 5 year T-note which is about 2.4%. Hmmm.... Beats the pants off the CD and the shirt. Hopefully you get to keep your dirty underwear.

 

[Mulligan]

Beats the shirt, pants and underwear off the CD, but please a fairer comparison would be with a 5 year T-note which is about 2.4%. Hmmm.... Beats the pants off the CD and the shirt. Hopefully you get to keep your dirty underwear.

Chuck, I dont think that is the best comparison because the 5 year yield of an Ibond is unknowable…Unless you want to plug in 0% inflation next 4 years which seems unrealistic. A valid comparison to a 1 yr CD or even 15 month CD is possible because you definitively know the 12 month and 15 month return on an IBond including penalty.

 

[Sunset]

If I buy some as a gift for my child to be delivered next year, does that count against this year's gift tax exclusion limit or next year's?

Would count in the year you actually deliver the gift.
You can buy the gift, and keep it in your gift box for a long as you like, then deliver the gift and have it count against the gift exclusion of ~$15K.

Note: If you kept it 5 years in the gift box, then deliver it, it can be cashed immediately without any 3 month penalty.

 

[pb4uski]

I wonder how much longer they will keep the "fixed rate" at 0%?

Why would they change it? It's not like they need to increase the fixed rate to attract money... to increase the fixed rate would be just throwing money away.

 

[pb4uski]

Chuck, I dont think that is the best comparison because the 5 year yield of an Ibond is unknowable…Unless you want to plug in 0% inflation next 4 years which seems unrealistic. A valid comparison to a 1 yr CD or even 15 month CD is possible because you definitively know the 12 month and 15 month return on an IBond including penalty.

+1 we now know the crediting rates for the next 12 months so compare the surrender value in 15 months (6 months at 7.12%, 6 months at 9.62% and 3 months at 0%) with a 15 month CD or 15 month UST.

 

[Henry Lili]

+1 we now know the crediting rates for the next 12 months so compare the surrender value in 15 months (6 months at 7.12%, 6 months at 9.62% and 3 months at 0%) with a 15 month CD or 15 month UST.

Thanks for the feedback. I don't plan on cashing them out after a year. I bought the 7.15 In November and happily look forward to the May bump. In the grand skeme of things, the 10k limit really limits ones risk/reward anyway.

 

[Henry Lili]

Thanks for the feedback. I don't plan on cashing them out after a year. I bought the 7.15 In November and happily look forward to the May bump. In the grand skeme of things, the 10k limit really limits ones risk/reward anyway.

Seems like a go for me. Thanks again.

 

[Chuckanut]

Chuck, I dont think that is the best comparison because the 5 year yield of an Ibond is unknowable…Unless you want to plug in 0% inflation next 4 years which seems unrealistic. A valid comparison to a 1 yr CD or even 15 month CD is possible because you definitively know the 12 month and 15 month return on an IBond including penalty.

I see your point and stand corrected. Thanks for pointing out these realities.

 

[Chuckanut]

In the grand skeme of things, the 10k limit really limits ones risk/reward anyway.

FWIW, one of the best ideas I have heard to help out savers during this time of high inflation is to bump up the maximum yearly I-bond purchase to about $40,000 per person.

That seems a lot more helpful than telling me inflation is the fault of corporate greed, a foreign leader, other politicians, etc.

 

[Magus]

Looking ahead to the Nov 6 month rate, PPI came in hot today @ 11.5%, with Core PPI (usually a decent gauge of forward core CPI) up 0.9% month on month....we may end up with three 6 months of 7+% rates on these IMO. My inflation expectations continue to to be elevated.

 

[Dash man]

Just purchased $10k each as gifts in my and DW’s accounts. This will bring the combined total of our iBonds to about $130k.

 

[Gearhead Jim]

We have a legal service through our daughter, we just got POAs, wills, etc revised at no charge.
The attorney is checking, he thinks that will cover simple trusts also.

The attorney just sent the message below:

Hi Jim:

I've spoken with a financial advisor and the legal insurance company. It looks like they will cover the costs, but with these trusts to be created, the financial advisor is concerned that the trust tax rate (36%+) would be prohibitive to any interest you might earn in the long run on these bonds.

The attorney strongly disclaims being a tax advisor, but the unknown Financial Advisor he contacted should know what the truth is. We are in Illinois, which may affect how a trust is taxed, but only for State tax.

Is the Financial Advisor who the attorney contacted merely mistaken about an arcane point of tax law, or is he some combination of incompetent/crooked?
Or is there some legal trick needed to avoid the 36% tax?

 

[pb4uski]

The attorney just sent the message below:

Hi Jim:

I've spoken with a financial advisor and the legal insurance company. It looks like they will cover the costs, but with these trusts to be created, the financial advisor is concerned that the trust tax rate (36%+) would be prohibitive to any interest you might earn in the long run on these bonds.

The attorney strongly disclaims being a tax advisor, but the unknown Financial Advisor he contacted should know what the truth is. We are in Illinois, which may affect how a trust is taxed, but only for State tax.

Is the Financial Advisor who the attorney contacted merely mistaken about an arcane point of tax law, or is he some combination of incompetent/crooked?
Or is there some legal trick needed to avoid the 36% tax?

I don't think so... basically, until you die the assets are taxed just like you own them with the revocable living trust that we are referring to where you are the grantor, trustee and primary beneficiary. YMMV.

... During your lifetime, there are no income-tax savings attributable to earnings of the trust. Because you retain total control over the assets and can revoke the trust anytime you want, you are taxed on all the income (on your personal tax return if you are the trustee). ...

https://www.kiplinger.com/article/r...ur lifetime, there are,if you are the trustee).

 

[disneysteve]

I'm sure this has been addressed but it's a 29-page-long thread so forgive me.


Is there any downside to buying an I-bond now as opposed to waiting until the new rate kicks in?