The I Bond Thread

[Gumby]

I understand buying up to a 10k gift bond a few months early in order to lock in the "current high" interest rate. What I do not understand on why people would buy 50 or 60K worth of give I bonds. I bonds usually do not out perform other investments and if you bought 60K for a spouse you are locked into keeping that money in the bonds for years are potentially low rates. The 10K per year limit per recipient with 60K in the gift at least 5 years for the last 10K to even leave the gift box)

Am I wrong, what am I not seeing?

If you look back through this thread, you will see many posts explaining people's reasoning. In short, it involves calculating the return on I bonds during the period they are tied up in the gift box, making some assumptions about future rate changes, and comparing that to alternatives of equal length. In the most conservative case you might assume that I bond rates will go to zero after the Nov 1, 2022 rate expires and make a decision based on that.

I am unaware of anyone here who went out five years on the gifts. I personally bought 10k gifts to be delivered in each of Jan 23, Jan 24 and Jan 25. The last was purchased April 22, so the money is tied up for 32 months. I thought the rate picture was insufficiently clear to go out longer. I think it was a good decision for otherwise idle cash, but time will tell. You should make your own calculations.

 

[MarieIG]

I opened a TD account yesterday and put in an order for my first I bond. Frankly, I was nervous as DH and I have been rejected by this website in the past.

Hopefully, the money will be withdrawn from the linked bank without incident. (It is always a concern with this bank as the number of zeros starting the account number. The check starts with four, the online account notes three...)

 

[cyber888]

Minor thing. According to TreasuryDirect, you lose the last 3 months of interest not the first 3 months. Must hold them for at least 1 year.

You are correct. The TD websites says you will lose the last 3 months of interest, if you withdraw before 5 years.

But, I'm a bit puzzled why you do not get any interest paid in the first 3 months when you check your balance at TDirect.

I got my first iBond in April, and they do not put any interest income for April, May, and June, and I only saw interest income starting in July. I just automatically thought they deducted the 1st 3 months and not the last 3 months.

Anyone can explain this ?

 

[Gumby]

It is taking the last three months of interest off and telling you what you would get if you cashed out now. (it ignores the one year minimum holding period solely for the purpose of this calculation)..

 

[cyber888]

It is taking the last three months of interest off and telling you what you would get if you cashed out now. (it ignores the one year minimum holding period solely for the purpose of this calculation)..

Ok, sounds like a very plausible explanation if you cash out now, but I guess you really can't take anything out, if it try to cash out for less than a year. I suppose the system will prevent you from cashing out now if you have less than a year's holding.

 

[pb4uski]

.... Any suggestions as to what I can do next?

Call them and wait the two hours.

I know it is frustrating. My uncle had a diffent issue and just sucked it up and waited while watching tv and eventually got through.

 

[jollystomper]

Ok, sounds like a very plausible explanation if you cash out now, but I guess you really can't take anything out, if it try to cash out for less than a year. I suppose the system will prevent you from cashing out now if you have less than a year's holding.

With holdings under a year, I would look at it not as "this is what you would get if you cash out now", but "this is the current value it has accrued so far for you" (different from "this is the total actual value so far"). Just a matter of semantics .

 

[euro]

Call them and wait the two hours.

I know it is frustrating. My uncle had a diffent issue and just sucked it up and waited while watching tv and eventually got through.

I agree. Once you do get a hold of an operator, I have found them to be competent and efficient. Just make you call from a stable phone line ( I called from a cell phone and I was VERY concerned about having the call drop two or three hours into the wait...). Also, make sure you call early in the morning (before 10 AM) because otherwise, you may not even make it in the queue that day.

 

[Chuckanut]

I agree. Once you do get a hold of an operator, I have found them to be competent and efficient. Just make you call from a stable phone line ( I called from a cell phone and I was VERY concerned about having the call drop two or three hours into the wait...). Also, make sure you call early in the morning (before 10 AM) because otherwise, you may not even make it in the queue that day.

+1

The guy who fixed my lock-out problem was very competent and easy to deal with.

FWIW, I dialed the TD number using my MacBook and my google voice number. While I waited, I proceeded to get some internet research done, answer a few emails, and then used the rest of the time raising my investment IQ on this site. The two+ hours was not a complete loss. When the fellow answered I opened my computer up to a window already pointing at TD and immediately checked to make sure my account was accessible.

 

[CRLLS]

I just figured out (just in time for the 9.6%) how to "gift" to DW. We both purchased gifts for each other today. So much better than having it sit in the local bank at 0.01% interest.

Now I have to figure out how to get into the purchased bonds and set the taxable interest to either annual or when cashed in and create beneficiaries, if possible.

 

[Gumby]

I just figured out (just in time for the 9.6%) how to "gift" to DW. We both purchased gifts for each other today. So much better than having it sit in the local bank at 0.01% interest.

Now I have to figure out how to get into the purchased bonds and set the taxable interest to either annual or when cashed in and create beneficiaries, if possible.

I don't believe TD has anything to do with how you choose to pay tax on the interest. You just file your tax return using whichever method you choose.

 

[braumeister]

There are a few wrinkles in that determination. Here is a good explanation:
Tax information for EE and I bonds

 

[aboatguy]

If you look back through this thread, you will see many posts explaining people's reasoning. In short, it involves calculating the return on I bonds during the period they are tied up in the gift box, making some assumptions about future rate changes, and comparing that to alternatives of equal length. In the most conservative case you might assume that I bond rates will go to zero after the Nov 1, 2022 rate expires and make a decision based on that.

I am unaware of anyone here who went out five years on the gifts. I personally bought 10k gifts to be delivered in each of Jan 23, Jan 24 and Jan 25. The last was purchased April 22, so the money is tied up for 32 months. I thought the rate picture was insufficiently clear to go out longer. I think it was a good decision for otherwise idle cash, but time will tell. You should make your own calculations.

Thank you for responding and explaining your reasons for going three years out on 12 months (max) of interest information.

My wife and I have gifts that can be delivered in Jan 23. However, I waited until we had some clarity on the next "interest rate". Personally I-bonds bother me, I understand that right now they make sense, however, the concept of taxing gains on assets that the treasury knows just kept even with inflation grates my soul as it is just another of the many hidden taxes imposed by inflation. However, that didn't stop me from buying them when they made sense started buying when they where 3.56% and we knew the follow on rate would be guaranteed to beat our emergency fund CDs.

 

[CRLLS]

Gumby, Braumeister, thanks for the info and links. I am a noob when it comes to treasuries. I am learning by fire and learning a lot.

 

[Gumby]

In April 2022, I had firm information on what I bond rates would be only for 12 months, but I could make a fairly good estimate of what they would be for 18 months, and a less certain estimate out to 24 months. The ability and willingness to act on incomplete/uncertain information has served me well in life.

As far as taxes go, it has always been my experience that earnings are taxed in a taxable account, regardless of the purported "reason" for those earnings. What would you rather have- an I bond that keeps up with inflation and has earnings taxed or lower fixed rate CD of equal duration that doesn't keep up with inflation and has earnings taxed? Seems like an easy call to me.

 

[Chuckanut]

Personally I-bonds bother me, I understand that right now they make sense, however, the concept of taxing gains on assets that the treasury knows just kept even with inflation grates my soul as it is just another of the many hidden taxes imposed by inflation.

+1

Inflation is a hidden tax.

 

[cyber888]

I'm glad my $20K gift to DW and myself that I bought last Saturday went through today, when I opened TDirect early morning. I was issued the new securities. This is for our 2024 allocation.

Now at 11:53 am EST, Treasury Direct website is 'acting up' as 'unavailable' at certain times and the LogIn portal is logging in very slowly - I think this week will be a very heavy traffic for TreasuryDirect.gov.

I foresee heavy web traffic. Don't wait for the last minute to buy the 9.62% iBonds. Good luck.

 

[NW-Bound]

There are a few wrinkles in that determination. Here is a good explanation:
Tax information for EE and I bonds

From the link, I learned that I could report the deferred I bond interest and pay taxes on it, in order to avoid the tax bomb at maturity when 30 years of interest AND inflation compensation get dumped on my lap.

Hmmm... It sounds fair, but paying taxes in advance is always hard to do.

 

[finnski1]

I'm glad my $20K gift to DW and myself that I bought last Saturday went through today, when I opened TDirect early morning. I was issued the new securities. This is for our 2024 allocation.

Now at 11:53 am EST, Treasury Direct website is 'acting up' as 'unavailable' at certain times and the LogIn portal is logging in very slowly - I think this week will be a very heavy traffic for TreasuryDirect.gov.

I foresee heavy web traffic. Don't wait for the last minute to buy the 9.62% iBonds. Good luck.

Yeah. Got mine about a week ago.

 

[cyber888]

Yeah. Got mine about a week ago.

That's great man. I was thinking of buying Wed, but thought that there may be website problems, so just did not risk it

 

[CRLLS]

The website may be slow but it worked for me over the weekend and today. I and my wife both purchased gifts Sat and Sunday. they were in our gift folders this morning. For those on the fence, only a few days left to purchase at 9.62%.

 

[finnski1]

That's great man. I was thinking of buying Wed, but thought that there may be website problems, so just did not risk it

Well I think you need to get them by the end of this week, Don't wait to Monday the 31st.

 

[bobandsherry]

+1

Inflation is a hidden tax.

And the IRS also makes adjustments due to inflation.

https://www.irs.gov/newsroom/irs-pr...axpayers and married,amount for tax year 2022.

 

[jollystomper]

I'm glad my $20K gift to DW and myself that I bought last Saturday went through today, when I opened TDirect early morning. I was issued the new securities. This is for our 2024 allocation.

Now at 11:53 am EST, Treasury Direct website is 'acting up' as 'unavailable' at certain times and the LogIn portal is logging in very slowly - I think this week will be a very heavy traffic for TreasuryDirect.gov.

I foresee heavy web traffic. Don't wait for the last minute to buy the 9.62% iBonds. Good luck.

True. One can also try doing it at times when traffic is likely to be less - e.g. before 8AM or after 1AM.

 

[NW-Bound]

From the link, I learned that I could report the deferred I bond interest and pay taxes on it, in order to avoid the tax bomb at maturity when 30 years of interest AND inflation compensation get dumped on my lap.

Hmmm... It sounds fair, but paying taxes in advance is always hard to do.

ARGHH! It's not what I thought. From that link:

You were deferring. You now want to report every year.

You may do this without permission from the IRS.

But you must do this for all the savings bonds for the Social Security Number whose tax return this is. In addition to the interest for the year you are now reporting, you must also report all interest those bonds earned in the years before you changed.

What this means is that if I want to avoid the eventual 30-year I bond tax bomb, I have to detonate the 18-year tax bomb I have on hand now. I don't have the choice of breaking the bomb into little grenades and exploding them sequentially in multiple years.

ARGHH!