Are you buying I bonds in 2014? And if so, for what role?

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Are you buying I bonds in 2014? And if so, for what role?

Postby bellemastiff » Sun Nov 24, 2013 2:02 pm

I haven't purchased an I Bond before but I'm thinking about buying them in 2014 and using them as a sort of medium term emergency fund.

I understand they could also potentially play a role (over time, given the 20k / yr max for married couple) as a component of the bond allocation in a larger (high six or seven-figure) portfolio that needs more tax advantaged space.

Just wanted to take an informal poll of Bogleheads... with current I bond composite rates ... do you plan to buy I bonds in 2014? And if so, what 'role' do they play in your overall financial picture? (e.g. emgcy fund vs. part of your 'bond allocation')
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Re: Are you buying I bonds in 2014? And if so, for what role

Postby digit8 » Sun Nov 24, 2013 2:18 pm

I have been continuously tempted to move a portion of my emergency fund over to Ibonds for the last few years. I put it off for simple laziness and preemptive fear of additional bookkeeping, as well as a bit of paranoia about the security of my (mortgage industry) job.
For me, I'd like to place them in as kind of a next-to-last-resort emergency fund, something I tap after savings but before needing to go into the retirement funds. And, In a very happy world where I never need it, the bridge that lets me take early retirement without having to do early withdrawals on the retirement accounts.
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Re: Are you buying I bonds in 2014? And if so, for what role

Postby Texas hold em71 » Sun Nov 24, 2013 2:23 pm

I do not. Since I have no state or local income tax and I-bonds are taxable for federal purposes, I am not sure I would benefit. I also make too much for them to be used for qualified educational expenses.
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Re: Are you buying I bonds in 2014? And if so, for what role

Postby Geist » Sun Nov 24, 2013 2:27 pm

Yes. I currently hold about half of my EF in I-Bonds, which I've had for about 2-3 years now. In April/May timeframe (after clearing out my military SDP account), I'm planning to buy another $10k in I-Bonds as most of the remainder of my EF. All told, I'll have about 85% of my baseline EF in I-Bonds (with the remainder in a plain old online savings account).

I would say that I-Bonds can definitely play a part in your AA. I also have an additional $4k in I-Bonds that I consider a part of my overall portfolio's (currently fairly small) bond allocation. In the long term, I plan to continue adding I-Bonds as part of that AA, in addition to my bond holdings in the TSP.
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Re: Are you buying I bonds in 2014? And if so, for what role

Postby Geist » Sun Nov 24, 2013 2:35 pm

digit8 wrote:For me, I'd like to place them in as kind of a next-to-last-resort emergency fund, something I tap after savings but before needing to go into the retirement funds.

The philosophy of their use is a undeniably a personal decision... But just to comment on this, I see them as the opposite -- I view my I-Bonds as "Stop #2" after my savings accounts, which as I mentioned above, are kept at a fairly low level. I-Bonds would be tapped before my taxable investment account, with retirement obviously being at the very bottom of the list.
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Re: Are you buying I bonds in 2014? And if so, for what role

Postby Tyrobi » Sun Nov 24, 2013 3:01 pm

Texas hold em71 wrote:I am not sure I would benefit. I also make too much for them to be used for qualified educational expenses.


I wonder can one get around I Bond's income limit to be tax free for qualifying education expenses by (1) redeeming I Bond to contribute to a 529 plan when the time comes, (2) then use it for education expenses.

I haven't bought any I Bond yet and I'm still investigating in what role should I accommodate it in my overall portfolio before buying.
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Re: Are you buying I bonds in 2014? And if so, for what role

Postby happymob » Sun Nov 24, 2013 3:06 pm

Yes. For emergency fund and possibly, eventually, for college tuition (we don't know if we will meet the income restrictions or not). We may also buy some under the kids' names and have them pay interest annually (they are under the kiddie tax limitations right now).
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Re: Are you buying I bonds in 2014? And if so, for what role

Postby John3754 » Sun Nov 24, 2013 4:06 pm

Yes, my wife and I buy $20k every year for exactly the reasons you stated, they are part of our emergency fund and our fixed income allocation.
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Re: Are you buying I bonds in 2014? And if so, for what role

Postby surfer1 » Sun Nov 24, 2013 4:12 pm

I look at I-bonds as a no-brainer and buy the max I can each year. It's basically a gift "CD" from the fed. You won't find a better risk-free interest rate. If you need the money, just break the bond after 12 months.
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Re: Are you buying I bonds in 2014? And if so, for what role

Postby sidartvader » Sun Nov 24, 2013 4:20 pm

This is the first year that I have started buying them, goal is to transfer about 50-75% of my EF over time into the I-Bonds. As far as retirement is concerned, I have not been convinced about their usefulness for me (State tax rate is relatively low + I doubt I would qualify for educational expenses tax benefit). Tax deferred growth is a good feature, of course.
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Re: Are you buying I bonds in 2014? And if so, for what role

Postby Phineas J. Whoopee » Sun Nov 24, 2013 4:21 pm

surfer1 wrote:I look at I-bonds as a no-brainer and buy the max I can each year. It's basically a gift "CD" from the fed. You won't find a better risk-free interest rate. If you need the money, just break the bond after 12 months.

I agree, but just for the record, they aren't from the Fed. They're from Treasury. The Fed prints and mails the paper version as one of the banking services it provides to the US government.

When I pay my electric bill it isn't Charles Schwab Bank paying. It's me. They just handle the logistics on my behalf.

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Re: Are you buying I bonds in 2014? And if so, for what role

Postby Mel Lindauer » Sun Nov 24, 2013 4:28 pm

Tyrobi wrote:
Texas hold em71 wrote:I am not sure I would benefit. I also make too much for them to be used for qualified educational expenses.


I wonder can one get around I Bond's income limit to be tax free for qualifying education expenses by (1) redeeming I Bond to contribute to a 529 plan when the time comes, (2) then use it for education expenses.

I haven't bought any I Bond yet and I'm still investigating in what role should I accommodate it in my overall portfolio before buying.


Contributions to a 529 Plan are considered to be a "qualifying educational expense". However, you'd still need to meet the income limits in the year you redeemed the bonds and contributed the proceeds to the 529 Plan for the transaction to be tax-free. This strategy is especially useful for those investors who do this just prior to the year in which their earnings will no longer qualify for the tax-free deduction.
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