Anyone buying extra $5000 I Bonds through tax refunds

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Julieta
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Anyone buying extra $5000 I Bonds through tax refunds

Post by Julieta »

I'm thinking about overpaying taxes to buy the extra $5k in I Bonds. I already maxed out the $10k for 2014.

Have you done this and do you think it's a good idea to buy before rate changes?
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lighthouse084
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by lighthouse084 »

Consider it a part of your emergency fund. Sure, you won't get access until after an year, but it still gives a good return while providing a cushion. Don't look at it as an investment. Your emergency fund does not have to provide mind-blowing returns. It just has to retain value. The benefit is that if you're lucky and you don't use the I-Bonds, you can defer taxes until later into retirement or for funding education. If interest rates rise way over the current 0.2%, you can simply redeem the bond after an year or two, pay some taxes, and buy again, but that will still count against your yearly limits. Therefore, you won't look down on yourself even if interest rates rise. In my opinion, the 0.2% fixed rate right now is still tempting.
Long story short: buy and don't look back. It's a multi-purpose fund.
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jimb_fromATL
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by jimb_fromATL »

Julieta wrote:I'm thinking about overpaying taxes to buy the extra $5k in I Bonds. I already maxed out the $10k for 2014.

Have you done this and do you think it's a good idea to buy before rate changes?
It's not good use of your money to give it to the gubbament to hold interest-free for a year.

Assuming you want i-bonds, adjust your withholding so you pay just enough tax for the year, and use the extra take-home pay to buy I-bonds throughout the year. This way you are earning interest on the ones you've bought with your money instead of letting the gubbament do whatever the heck they would do with it.

jimb
John3754
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by John3754 »

Julieta wrote:I'm thinking about overpaying taxes to buy the extra $5k in I Bonds. I already maxed out the $10k for 2014.
I've considered it but there's two things stopping me...one is that my wife and I already buy $20k a year and this seems like enough to me...the other is that I don't want to have to keep track of the paper bonds for the next 30 years.
Julieta wrote:Have you done this and do you think it's a good idea to buy before rate changes?
The problem is, if the fixed rate does change, how do you know which direction it's going to go? Timing the I bond market is just as impossible as timing any other market.
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Julieta
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Julieta »

I never thought about holding the paper bonds. Is there no way to keep track of them on the Treasury Direct site? This is my first purchase so I'm learning...
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placeholder
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by placeholder »

jimb_fromATL wrote:It's not good use of your money to give it to the gubbament to hold interest-free for a year.
What do you mean?
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surfer1
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by surfer1 »

I'll take paper I-bonds for any refund I get, but I'm not intentionally aiming for the full 5k. After PenFed's 3% CD offer, the I-bonds seem less attractive.
DetroitRed
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by DetroitRed »

For the last several years I've made an estimated tax payment using Form 1040-ES by Jan 15th to bump up my refund to a bit over $5,000.

Then I file as early as possible after I get all my 1099s.

Works like a charm and gets me $5,000 of paper I Bonds.
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Julieta
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Julieta »

Pen Fed CDs are good but for taxable space the I Bonds may be worth checking, as no state tax and deferred Fed tax.
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sscritic
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by sscritic »

Julieta wrote:I never thought about holding the paper bonds. Is there no way to keep track of them on the Treasury Direct site? This is my first purchase so I'm learning...
Once you have the paper bonds, you can submit them for conversion to electronic bonds at TreasuryDirect. They will be called converted bonds once they are converted.
http://www.treasurydirect.gov/indiv/hel ... ertpapersb

P.S. This assumes you already have a TD account. It wasn't clear what is first about this purchase, I bonds or paper.
lighthouse084
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by lighthouse084 »

jimb_fromATL wrote:
Julieta wrote:I'm thinking about overpaying taxes to buy the extra $5k in I Bonds. I already maxed out the $10k for 2014.

Have you done this and do you think it's a good idea to buy before rate changes?
It's not good use of your money to give it to the gubbament to hold interest-free for a year.

Assuming you want i-bonds, adjust your withholding so you pay just enough tax for the year, and use the extra take-home pay to buy I-bonds throughout the year. This way you are earning interest on the ones you've bought with your money instead of letting the gubbament do whatever the heck they would do with it.

jimb
You can overpay taxes and then file for a refund within a very short window of time. You can send an estimated tax payment and then artificially create the need for a $5k refund that gets used to get the I-Bonds.
sscritic
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by sscritic »

lighthouse084 wrote: You can overpay taxes and then file for a refund within a very short window of time. You can send an estimated tax payment and then artificially create the need for a $5k refund that gets used to get the I-Bonds.
We know one window is short. Your fourth estimated tax payment of 2013 is due in three days.
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by jimb_fromATL »

placeholder wrote:
jimb_fromATL wrote:It's not good use of your money to give it to the gubbament to hold interest-free for a year.
What do you mean?
If you overpay your taxes badly enough to get $5000 back as a refund, the government is using your money, but they're not paying you any interest on it. You don't have it to use for yourself either.

If you reduce your withholdings by $5000 for the year, you'll have an average of $416 per month more take-home pay that you can use to invest or buy bonds, or pay down debt, or spend frivously on stuff like groceries, etc. If you do plan to buy bonds with it, why not earn some interest for yourself by buying the bonds as soon as you can?

jimb
sscritic
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by sscritic »

It's not good use of your money to give it to the gubbament to hold interest-free for a year.
buying the bonds as soon as you can?
When is January 15? How early can you file? Is that soon enough for you? How soon will you get your bonds? Do you think you will get them before January 15, 2015?

P.S. If they get a February issue date, they will earn interest as of February 1, two weeks after you make your estimated tax payment.
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Cash »

jimb_fromATL wrote:
placeholder wrote:
jimb_fromATL wrote:It's not good use of your money to give it to the gubbament to hold interest-free for a year.
What do you mean?
If you overpay your taxes badly enough to get $5000 back as a refund, the government is using your money, but they're not paying you any interest on it. You don't have it to use for yourself either.

If you reduce your withholdings by $5000 for the year, you'll have an average of $416 per month more take-home pay that you can use to invest or buy bonds, or pay down debt, or spend frivously on stuff like groceries, etc. If you do plan to buy bonds with it, why not earn some interest for yourself by buying the bonds as soon as you can?

jimb
You are miscomprehending this concept. Assume that an individual has no problem purchasing $10k in I bonds through regular cash flow, but wishes to purchase an additional $5k, for a total of $15k per year. One way to do so is to "overpay" your taxes and receive a refund. This can be done within a relatively short timeframe. See this blog post: http://thefinancebuff.com/backdoor-to-p ... bonds.html
Bracket
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Bracket »

Maybe. I just decided to move some of my emergency fund into I bonds and made my first ever purchase, 20k for my wife and myself. Until now I was concerned I'd be redeeming I bonds prior to retirement and didn't think they made sense for me due to my tax bracket but I'll be 38 this year and hope to be retired by 68.

If I get a tax refund of 5k or more I will probably buy more I bonds, but I don't plan to jump through the pay extra tax hoop to do so. Last year I got more than $5000 as a refund but new this year I'll have all the ACA and ATRA or whatever it's called changes, plus I'll get hit with PEP and PEASE as well, and of course good old AMT so I won't know until I actually do my taxes. I've been looking forward to the surprise all year.
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Dutch
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Dutch »

Yup, I will be doing this for the third year now.

Just follow the instructions in the link above from the finance buff. Could not be easier. I use the electronic payment option explained in the comments.
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Dutch
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Dutch »

jimb_fromATL wrote:If you overpay your taxes badly enough to get $5000 back as a refund, the government is using your money, but they're not paying you any interest on it. You don't have it to use for yourself either.
No, you submit your over-payment a couple of days before filing your tax return. Missed interest is negligible.
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surfer1
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by surfer1 »

Julieta wrote:Pen Fed CDs are good but for taxable space the I Bonds may be worth checking, as no state tax and deferred Fed tax.
I-bonds have a tax benefit, but it still doesn't compare to a 3% CD: 3.04 - (3.04 * .28) = 2.19% compared to 1.38% (and if you include the eventual fed tax, it's 0.99%). Add in state and you still come out ahead. Did I do that right? :)
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by jmndu99 »

jimb_fromATL wrote:
Julieta wrote:I'm thinking about overpaying taxes to buy the extra $5k in I Bonds. I already maxed out the $10k for 2014.

Have you done this and do you think it's a good idea to buy before rate changes?
It's not good use of your money to give it to the gubbament to hold interest-free for a year.

Assuming you want i-bonds, adjust your withholding so you pay just enough tax for the year, and use the extra take-home pay to buy I-bonds throughout the year. This way you are earning interest on the ones you've bought with your money instead of letting the gubbament do whatever the heck they would do with it.

jimb


+INFINITY

The gubbament gets enough of my money, I don't wanna give it an interest free loan. I too, use the extra money to invest and give myself that interest.

Listen to jimb
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jimb_fromATL
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by jimb_fromATL »

Cash wrote:
jimb_fromATL wrote: You are miscomprehending this concept. Assume that an individual has no problem purchasing $10k in I bonds through regular cash flow, but wishes to purchase an additional $5k, for a total of $15k per year. One way to do so is to "overpay" your taxes and receive a refund. This can be done within a relatively short timeframe. See this blog post: http://thefinancebuff.com/backdoor-to-p ... bonds.html
Oh! That's different. I was not aware that there was a way to get around the $10K limit. Nor was I aware that it was a way to get paper i-bonds still.

So... I can see why you might want to do it --IF you really want to buy more that $10k in i-bonds per year, or if you don't trust them new-fangled computers. :wink:

I wonder it that was on oversight?

jimb
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by letsgobobby »

surfer1 wrote:
Julieta wrote:Pen Fed CDs are good but for taxable space the I Bonds may be worth checking, as no state tax and deferred Fed tax.
I-bonds have a tax benefit, but it still doesn't compare to a 3% CD: 3.04 - (3.04 * .28) = 2.19% compared to 1.38% (and if you include the eventual fed tax, it's 0.99%). Add in state and you still come out ahead. Did I do that right? :)
With the CD you pay those taxes annually whereas with the I bond you get to defer your taxes for up to thirty years. And you can choose to redeem at a propitious time for you, say when you are in a low tax bracket.

I bonds are to protect against inflation over very long periods of time. A CD can't do that.

Note this other recently bumped thread about the same subject:

http://www.bogleheads.org/forum/viewtop ... 10&t=92073

I used 4868 to request an automatic extension, and sent a check with it. Seems this will work.
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Epsilon Delta
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Epsilon Delta »

sscritic wrote:
lighthouse084 wrote: You can overpay taxes and then file for a refund within a very short window of time. You can send an estimated tax payment and then artificially create the need for a $5k refund that gets used to get the I-Bonds.
We know one window is short. Your fourth estimated tax payment of 2013 is due in three days.
January 15th is only a deadline if you're trying to avoid an estimated tax penalty. If you're paying extra to generate a refund and have already paid enough withholding/estimated payments to meet a safe harbor there is no penalty for an estimated payment after Jan 15th. Moreover if you discover that you are under-withheld in February you can make a late estimated payment to stop the penalty from growing (the penalty is simple interest between when the payment is due and when it is made)
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by placeholder »

jimb_fromATL wrote:If you overpay your taxes badly enough to get $5000 back as a refund, the government is using your money, but they're not paying you any interest on it. You don't have it to use for yourself either.
File an extension request with payment that is enough to bring your refund up to the 5k you need then file your return right after.
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NightOwl
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by NightOwl »

I'm going to do the $5k I bond tax refund hoop-jump this year, for the first time. As noted by several posters above, it doesn't involve allowing the IRS to hold $5k of one's money for very long at all.

NightOwl
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by femur »

Im thinking of buying paper I Bonds this year but I probably wont do the full $5000.

I am curious if anyone can tell me what denominations I will get. For instance, if I want $550, will I get one $500 bond and 1 $50 bond? I see that form 8888 does not allow me to specify what denominations I prefer.
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Epsilon Delta
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Epsilon Delta »

femur wrote:Im thinking of buying paper I Bonds this year but I probably wont do the full $5000.

I am curious if anyone can tell me what denominations I will get. For instance, if I want $550, will I get one $500 bond and 1 $50 bond? I see that form 8888 does not allow me to specify what denominations I prefer.
I will satisfy your curiosity: There are people who can tell you what denominations you can get.


I'm not quite mean enough to leave it there, so have some links:

http://www.bogleheads.org/forum/viewtop ... 8#p1303498
http://www.treasurydirect.gov/indiv/res ... .htm#denom
Barefootgirl
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Barefootgirl »

I think The Finance Buff link posted up the thread explains the denominations and how they are issued.

Also, via the same link, I understood the January 15th deadline only applies to under payment and penalty and/or interest calculation- that an overpayment can be made up until the day one files the return.

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femur
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by femur »

Epsilon Delta wrote:
femur wrote:Im thinking of buying paper I Bonds this year but I probably wont do the full $5000.

I am curious if anyone can tell me what denominations I will get. For instance, if I want $550, will I get one $500 bond and 1 $50 bond? I see that form 8888 does not allow me to specify what denominations I prefer.
I will satisfy your curiosity: There are people who can tell you what denominations you can get.


I'm not quite mean enough to leave it there, so have some links:

http://www.bogleheads.org/forum/viewtop ... 8#p1303498
http://www.treasurydirect.gov/indiv/res ... .htm#denom
Thank you, sir/madam! I swear I did a google search before I asked! :oops:
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Dutch
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Dutch »

femur wrote:Im thinking of buying paper I Bonds this year but I probably wont do the full $5000.

I am curious if anyone can tell me what denominations I will get. For instance, if I want $550, will I get one $500 bond and 1 $50 bond? I see that form 8888 does not allow me to specify what denominations I prefer.
For the full $5,000 you get: 4 * $1,000 + 1 * $500 + 1* $200 + 6 * $50
sscritic
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by sscritic »

But the order you get them in (if they put them in the envelope correctly) is

5 * $50 + 4 * $1,000 + 1 * $500 + 1* $200 + 1 * $50,

the first $250 being $50 bonds. :)

P.S. Last year, they did not put them in the envelope in the correct order, all 6 of the $50 bonds being together. You just can't trust the feds to follow their own rules.
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Epsilon Delta
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Re: Anyone buying extra $5000 I Bonds through tax refunds

Post by Epsilon Delta »

femur wrote:
Thank you, sir/madam! I swear I did a google search before I asked! :oops:
I believe you. However I already knew the answer so it was much easier to select a search string. If you search for "If you buy $250 or less of savings bonds with your refund, then the $50 denomination will be used to fill the order." google takes you directly to useful links, although this post has probably just altered the result of the search. :twisted:
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