Series I Bonds, which the Treasury Department announced will be paying 9.62 percent until the end of October… you have to hold them for five years to get the full accurity. If you cash them after three years and before five years you only lose three months of interest. You can defer federal taxes on earnings for up to 30 years. I bonds aren’t as liquid as some other investments, so this is monly you don’t need for a couple years.
https://www.washingtonpost.com/business/2022/05/03/inflation…
Hi TucsonBones,
There were some good discussions on I-bonds upthread over the last couple weeks. Here’s a link to one that I started:
https://discussion.fool.com/i-bond8217s-variable-rate-962-350899…
And here’s a Q&A link with everything one could want to know (well almost everything) about I-bonds.
https://tipswatch.com/qa-on-i-bonds/
And with this ugly correction going on, they may start catchingon. I saw am interview with Kudlow a few days ago, where he stated that they are the single best investment available right now. Unfortunately, the amount of I-bonds you can buy each year are limited, but if you’re patient you can build a nice nest egg.
Best,
DT
Purchaser of I-bonds for many years
Sure it’s a good time to buy i-bonds. But the $10k limit does not do much for a retirement account.
For most thats a pittance compared to what you need to retire.
Hi Paul,
But the $10k limit does not do much for a retirement account
You are right that $10K is not enough to make a huge difference considering the full amount needed to retire comfortably. But with my 10K, my wife’s 10K, our trust’s 10K, and 5K from our tax return, we can put $35/year into our Treasury Accounts. After several years, that starts to add up. And this is money that I am placing into my “Liability Matching Portfolio”. It’s the money that I absolutely am not willing to risk because it will help pay for my essentials during retirement if/when the proverbial doo-doo hits the fan. Almost 10% return on perhaps the safest investment in the world is hard to beat.
I also have a “Risk Portfolio” where I invest in mostly stocks (currently down quite a ways in 2022), that I will use to pay for luxuries and bequests.
I like I-bonds because they fill a specific need in my retirement investment plan. But I do wish I could buy $100K per year at these rates! There has been some talk about raising the limit…
BTW, William Bernstein came up with the LMP and RP designations. It makes a lot of sense to me.
Best,
DT
Sure it’s a good time to buy i-bonds. But the $10k limit does not do much for a retirement account.
You can’t buy I-bonds in a retirement account - just in your taxable accounts. Trusts that you have set up may be able to buy them, too. But not retirement accounts.
AJ
You are right that $10K is not enough to make a huge difference considering the full amount needed to retire comfortably.
Sort of ironic that the $10K limit isn’t indexed to inflation.
Mike
$10K limit… pittance…
is per individual per year. Multiple family members can each buy them, every year.
Anyway I’ll take the upside of $960 * 3 vs $10 * 3. Buys another trip, eventually.
Every little bit counts. Obviously it’s a pittance compared to playing defense by exiting equities completely to preserve capital in a bear market, but that’s another topic.
They are a good opportunity for those just beginning. Those who plan to retire on investments need to do more.
Early on families have many needs for funds. Downpayment on a home, educating children, etc. Also they often are in the low range of their potential income. Full funding retirement can be difficult.
Once kids are on their own and mortgage is paid off, saving for retirement gets easier. That’s when many have the opportunity to save more.
There’s nothing wrong with i-bonds. Just plan to do more when you can (and we hope one day at higher returns in equities).
AJ,
Thank you for all of the information that you so freely provide on this and other boards. I’ve looked into the Treasury Direct website and see that I-bonds can be purchased by “some trusts”.
My wife and I have revocable trusts in our names for estate purposes. For my trust, I am the trustee and the settlor. Same for my wife’s trust.
We have not gotten EIN numbers for these trusts, and instead use or SSN’s for accounts that have been set up in the name of the trust. My wife and I have been purchasing I-bonds (up to the limit) the past couple of years using our SSNs and I am wondering now about seeing if we can also sock some money away into I-Bonds for the trusts.
I’m assuming because Treasury Direct would limit our ability to purchase up to the max (10K/year) under each SSN, that the only way that we can purchase in the Trust would be to set up EINs for each Trust and then purchase under those EINs.
I’m also assuming that we would then need to file separate simple tax returns for each of the EINs as well as the interest would be reported under that EIN.
Am I thinking about this correctly? Thank you!!!
'38Packard
I’m assuming because Treasury Direct would limit our ability to purchase up to the max (10K/year) under each SSN, that the only way that we can purchase in the Trust would be to set up EINs for each Trust and then purchase under those EINs.
According to this article https://thefinancebuff.com/buy-more-i-bonds-treasury-direct-… your revocable living trusts can still use your SSN as the tax ID for I-bond purchases. The article also goes through some of the details for setting up a Treasury Direct account for your revocable living trust.
That said - unless you are sure you will be using the proceeds from the I-bonds for tax-exempt expenses (i.e. education) or tax-deductible expenses (like qualified medical costs), I would point out that by buying $40k of I-bonds each year, you could be setting yourself up for a significant tax bill in 30 years when the I-bonds mature, especially since the current inflation rates are giving a large bump in your compounding. You may be able to minimize this hit by declaring the interest income yearly, or by staggering your redemptions over a few years, rather than holding the I-bonds to maturity. If you choose to declare the interest income yearly, you can’t pick and choose which bonds you want to do this on - you have to have the same treatment for all of your bonds. From IRS Pub 550 https://www.irs.gov/pub/irs-pdf/p550.pdf
Reporting options for cash method taxpayers. If you use the cash method of reporting income, you can report the interest on Series EE, Series E, and Series I bonds in either of the following ways.
1. Method 1. Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year in which they mature. (However, see Savings bonds traded, later.)
Note. Series EE bonds issued in 1991 matured in 2021. If you have used method 1, you generally must report the interest on these bonds on your 2021 return. The last Series E bonds were issued in 1980 and matured in 2010. If you used method 1, you generally should have reported the interest on these bonds on your 2010 return.
2. Method 2. Choose to report the increase in redemption value as interest each year.
You must use the same method for all Series EE, Series E, and Series I bonds you own. If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1.
AJ
AJ,
Thank you for your response! I’m thinking that we will be cashing these bonds out at intervals and reporting the interest at the time of redemption.
The link you provided was extremely helpful to me!
Thanks again.
'38Packard