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by Kevin M
Mon Mar 04, 2024 1:20 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Taxation of Treasury bills, notes and bonds

I used FreeTaxUSA to file my federal and state returns for 2023. After you input the data from the 1099-B into the software, during the "interview" process the software asks if there are any adjustments to be made. You select the relevant response from the options provided, (regarding accrued market discount), and it will automatically list the income as interest on Schedule B. It was harder to write this than it was to accomplish the simple entry on the software. ok not sure the difference between accrued market discount and accrued interest. guess i didnt have accrued interest this year. my tax form just shows accrued market discount and it looks like it goes to 1f Market discount is the difference between the price you paid an...
by Kevin M
Mon Mar 04, 2024 8:37 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Taxation of Treasury bills, notes and bonds

p550 p.49 - Discounted Debt Instruments Treat your gain or loss on the sale, redemption, or retirement of a bond or other debt instrument originally issued at a discount or bought at a discount as capital gain or loss, .... Thanks. Which type of bonds qualify what said above, so their market discount can be treated as capital gain? For most of what we deal with, "except as explained in the following discussions", which you didn't include in your Pub 550 quote above, does not necessarily refer to different types of bonds; it also refers to what part of the gains are treated as ordinary income. Here are the two "except as explained" things we deal with most often: Short-term government obligations. Treat gains on short-te...
by Kevin M
Sun Mar 03, 2024 2:59 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Taxation of Treasury bills, notes and bonds

(Sorry about my post format. I don't know how to do it right.) hghysm21 wrote: Sat Mar 02, 2024 6:14 pm1. My old questions: 1. Is there any bond, regardless of issue date, is considered short term bond, as long as it matured within 1yr from the date of purchase? 2. If market discount needs to be reported as interest, why the brokerage firms list them as short term capital gains? Kevin's post: 1. What is it about my previous answer that you don't understand? 2. I assume this is what the IRS requires. I have no idea why, and I don't really care. All that's important is knowing how to handle it. My new questions: Thanks. I just want to know: (a) Do Short Term Bonds include EXCLUSIVELY those matured, etc within 1 yr from their ISSUE date, not ...
by Kevin M
Sun Mar 03, 2024 9:56 am
Forum: Personal Consumer Issues
Topic: Best way to pay for a car in cash with Schwab
Replies: 20
Views: 1590

Re: Best way to pay for a car in cash with Schwab

I just bought a car and paid from Schwab with a direct debit from my checking account. The car app connected to my Schwab accounts using something like Plaid, but I don't think that was it. Interestingly, the app wouldn't work with Fido, which is where I had the cash, so I wired it from Fido to Schwab; free and same day.

If that doesn't work for you, and they won't accept a personal check, then a wire seems like a good option. Depending you your level of assets, Scwhab may reimburse the $15 wire fee (they always do for me).
by Kevin M
Sun Mar 03, 2024 9:50 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Taxation of Treasury bills, notes and bonds

Okay, just a check to make sure I'm doing this correctly here. I purchased some STRIPS last fall with about 20 years to maturity. Vanguard reports the 1099-OID for all of these bonds. However, due to screwing up a few buys, I did sell a few of the bonds within a couple of days of purchase to get back to the right ladder rungs. All of these sales were for a slight gain (no wash sale issues!) On the 1099-B "SHORT TERM TRANSACTIONS FOR COVERED TAX LOTS" section, it reports the purchase basis and sale proceeds. The reported gains are the entire difference between these two values. However on the right under "Additional information" it reports "Original basis." These numbers are slightly less than "Cost or oth...
by Kevin M
Sun Mar 03, 2024 9:49 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Taxation of Treasury bills, notes and bonds

hghysm21 wrote: Sat Mar 02, 2024 6:14 pm 1. Is there any bond, regardless of issue date, is considered short term bond, as long as it matured within 1yr from the date of purchase?
2. If market discount needs to be reported as interest, why the brokerage firms list them as short term capital gains?
1. What is it about my previous answer that you don't understand?

2. I assume this is what the IRS requires. I have no idea why, and I don't really care. All that's important is knowing how to handle it.
by Kevin M
Sat Mar 02, 2024 4:55 pm
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2927

Re: Building a TIPS ladder for IRA RMDs

So I figure when I'm done with the first pass, if TIPS yields still are attractive relative to other alternatives for "safe" assets (keeping in mind that nothing is safer than TIPS with a maturity or duration matching the investment horizon), I can use the RMD ladder as a guide to continuing to roll the shorter maturities into longer maturities. I didn't know your IRA was exclusively TIPS. If mine were, I do think that I'd want to have them maturing to meet RMDs (or migrate enough to a TIPS fund to meet them), as I'd worry that moving individual TIPS in-kind might complicate taxes. But not sure if that is that your reason why or if there some other reason? You could meet RMDs by moving TIPS in-kind to taxable. Besides possibly co...
by Kevin M
Sat Mar 02, 2024 4:51 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Taxation of Treasury bills, notes and bonds

hghysm21 wrote: Sat Mar 02, 2024 2:52 pm Thanks !!
I understand now that short term bond is the bonds matured within 1 yr from issue date. it is not the bonds matured within 1yr from purchase date. Correct?
If you're talking about what Pub 550 is referring to as "Short-term government obligations", then yes. So for tax purposes, it matters.

But generally I pay no attention to what the maturity date was when issued. I just buy whatever looks good at the desired maturity. Might be a bill, note or bond if less than one year left to maturity, but couldn't be a bill if more then one year left to maturity.
by Kevin M
Sat Mar 02, 2024 4:48 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

Stubbie wrote: Sat Mar 02, 2024 2:13 pm
Kevin M wrote: Sat Mar 02, 2024 10:13 am Hmm. Now when I look in Order Status for this account, I don't see the order. I went through the auction screens again and tried to place another order, and as expected, I got a warning that I had open orders, and was able to see the open order here and cancel it.
That sounds like routine Vanguard quirkiness.
Yep, one of several reasons I moved most accounts to Fido or Schwab.
by Kevin M
Sat Mar 02, 2024 1:43 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Taxation of Treasury bills, notes and bonds

Hi Kevin, I’m new to this forum, notes bought on 2ndary market at discount, and taxation. Since t-bills are short term government obligation, so I wonder if my t-notes matured <1yr are also in that group. Now I know my notes are not. Am I right? Would you provide a link to your post about notes? Or, tell me how to get there? Thanks! Correct: the tax treatment of bills is different than that for notes and bonds. IRS Pub 550 uses the term "short-term government obligations" for bills: Short-term government obligations . Treat gains on short-term federal, state, or local government obligations (other than tax-exempt obligations) as ordinary income up to your ratable share of the acquisition discount. This treatment applies to obliga...
by Kevin M
Sat Mar 02, 2024 1:35 pm
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2927

Re: Building a TIPS ladder for IRA RMDs

I'm not seeing the need to increase your TIPS ladder rung size in order to match expected RMDs. You apparently do not need cash beyond the extent of your existing ladder (except maybe for additional income taxes), so the additional withdrawal to get up to the RMD amount could be any asset, either in-kind or sold and withdrawn as cash. That asset should be chosen to match your investing goals. Maybe TIPS are a match for that, maybe not. I would suspect that anyone over-funded might hold stocks for legacy, for instance. Good insight. I think I addressed this in my reply to MtnBiker. I'm not seeing where this was addressed, not sure what I'm missing. This is what I was referring to: In another thread we've been having a discussion about what ...
by Kevin M
Sat Mar 02, 2024 11:18 am
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2927

Re: Building a TIPS ladder for IRA RMDs

With the current approach, we enter this formula for the 2040: =VLOOKUP(YEAR(B45),DARA!A:B,2,0) * 4 Note that this is the same formula as used for 2041-2054, but with the additional "* 4" added to multiply the DARA in our table by 4. For the 2034, we multiply by 3. I haven't tried it yet, but an easier way might be to add a new multiplier column in which we'd enter the original multiplier values, or whatever we would have used for them, and use those values as the multipliers in the formula for the DARA values that now populate the original multiplier column. We could add that column at the far right, so as not to change any of the other column letters, but it might be more convenient to insert the column to the left of the origi...
by Kevin M
Sat Mar 02, 2024 10:16 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Taxation of Treasury bills, notes and bonds

Kevin wrote “Bills are not considered market discount bonds, but are in a category of their own: short term US government obligations. The accrued acquisition discount is treated as interest,” 1. I bought a treasury NOTE at discount on 2ndary market. It matured in the same year that I bought. Is this type of treasury note considered “short term US government obligations “? If not, can I treat the market discount as short-term capital gain? 2. In 2023 Fidelity 1099-B, is the market discount already included in the cost basis? Thanks very much for your help. See Kevin's very first post for more detailed explanations. But for your specific case the answer to all your questions is no. The accrued market discount (box 1f) still has to be treate...
by Kevin M
Sat Mar 02, 2024 10:13 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

Considering buying some 3-mo T-Bill through auction with my taxable cash in VUSXX with Vanguard. There is an auction open now, which settles on 3/7. Is it correct that if I put in the VUSXX sell order before end of 3/6 trading day, it will settle next day and be able to cover the 3/7 auction settlement? Yes, that should work. As long as settlement dates align, it should be OK to sell something to cover a purchase. The question is whether or not Vanguard will let you place the auction order without enough cash showing as available to trade. I would just try to place the order now. The auction is on Monday, so you'll need to get the order in before VG closes the order window; I see that their cutoff time is 9:30 am ET on Monday. I am an agen...
by Kevin M
Fri Mar 01, 2024 1:00 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

I went ahead and sold some Jul 2024 TIPS to buy some 2040s, since I need a lot for the gap years, and the yield was 2.00% rounded to 2 decimal places. The yield of 1.999% is about 2.01% seasonally adjusted. The low yield I got on this one was 1.86% on Dec 21, the high was 2.13% on Feb 13, and my average dollar weighted yield is 2.01%.
by Kevin M
Fri Mar 01, 2024 9:52 am
Forum: Personal Investments
Topic: BND vs Treasury ladder
Replies: 28
Views: 3805

Re: BND vs Treasury ladder

Thank you! One question regarding tax treatment - My understanding is that with Treasury Notes (> 52 wks), on the secondary market, the coupon payment will be taxed as ordinary income in the year received and at maturity I pay the difference between par and discount value as a long term capital gain, correct? Or is the latter taxed as ordinary income as well? On Fidelity I believe I can opt to amortize the discount over the holding period or defer it to maturity, which option is the default? Ordinary income for both. The default is to report accrued market discount at maturity; you need to make an election to report it annually. Note that this is a cool way to defer taxes--buy a low-coupon note or bond, and defer most of the taxes to matur...
by Kevin M
Fri Mar 01, 2024 9:46 am
Forum: Personal Investments
Topic: BND vs Treasury ladder
Replies: 28
Views: 3805

Re: BND vs Treasury ladder

You can get just about any maturity you want on the secondary market, which is where you'll want to buy if you want to create a ladder without waiting for auctions. With Fidelity, are there any fees or any other gotchas that I need to be aware of when buying a Bill or Note on the secondary market? Or is it exactly like buying a new issue? There are no fees. The only thing I check is the spread between the best yield, typically for larger quantities, and the yield for the quantity you're buying. I call this the large/small-qty spread. Usually it's small enough that I proceed with the purchase, but one reason I moved to Schwab was that they usually have best price/yield for min qty 1, and if not, the min qty 1 price/yield usually is just a h...
by Kevin M
Fri Mar 01, 2024 9:33 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

I tried buying 1/34 TIPS this morning at Fidelity (20 at $98.398), following the favorable PCE report, figuring that yields will likely decline because of the favorable inflation report. Fido was reporting a YTM of 1.929% My order was canceled. I guess a lot of people have the same idea..... I just tried again (20 at $98.429) YTM 1.925%. Order open.. So I canceled it and tried again (20 at $98.445) YTM 1.923....order canceled. Filled at $98.468 . YTM 1.921%. Still 0.11% better than the yield I got at auction last month. Right. The Jan 2034 ask at one point yesterday was 1.96%; the yield you got was only 4 basis points less. The thing to remember is that TIPS yields are volatile, so they could go up again tomorrow. Yep. As soon as I saw the...
by Kevin M
Fri Mar 01, 2024 9:24 am
Forum: Investing - Theory, News & General
Topic: New tool for building a TIPS ladder
Replies: 422
Views: 79513

Re: New tool for building a TIPS ladder

Hi - novice questions here on using the tipsladder.com output; I think I got it, but just to check... For the years without bonds (2035, '36, '37), I would be purchasing the same bond as 2034. 2034 91282CJY8 × 33 $32,489 $32,932 $8,536 $41,468 2035 91282CJY8 × 33 $32,489 $32,932 $7,383 $40,315 2036 91282CJY8 × 33 $32,489 $32,932 $7,383 $40,315 2037 91282CJY8 × 33 $32,489 $32,932 $7,383 $40,315 Question 1: the CashFlowCalendar shows one $130K purchase of this bond, so I on Fidelity/Vanguard, I can make one large purchase (132 bonds; i.e., 33+33+33+33) for these four years? Yes. Question 2: this bond JY8 is a 10-year that matures in 2034. The CashFlowCalendar shows "$132,875 Maturity" happening in 2034. (There are no Maturities in ...
by Kevin M
Fri Mar 01, 2024 9:09 am
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Taxation of Treasury bills, notes and bonds

Kevin M wrote: Tue Nov 15, 2022 7:26 pm Accrued market discount[/b] is reported by the broker as an adjustment to capital gains in box 1f of 1099-B for the year in which the security is disposed of (sold or matures). [rest text skipped] Looking at my 2019 1099s, I see that Schwab and Fidelity report it slightly differently. [Table skipped] Schwab shows the unadjusted basis, and subtracts accrued market discount to get the gain/loss. Fidelity shows the adjusted basis (accrued market discount added to basis), so gain/loss = proceeds - basis. MY QUESTION: Thanks Kevin for the above posting. I have several questions: 1. Does what written above about Schwab and Fidelity cost basis etc only apply to long term t-notes? 2. 2023 Fidelity 1099-B sho...
by Kevin M
Thu Feb 29, 2024 3:50 pm
Forum: Personal Investments
Topic: BND vs Treasury ladder
Replies: 28
Views: 3805

Re: BND vs Treasury ladder

Aren't you concerned at all about unexpected inflation? I wasn't so much until 2021-2022 came along. Now I am.

I am not going out further than two years with nominal Treasuries--my longest maturity is 12/31/2025. Anything longer than that is in TIPS.

You can get just about any maturity you want on the secondary market, which is where you'll want to buy if you want to create a ladder without waiting for auctions.
by Kevin M
Thu Feb 29, 2024 3:02 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

One more question Kevin - how do you handle the cash at Schwab? If I buy into their MM fund - and need to buy some TIPS - can I sell the MM fund and buy TIPS same day - while the MM sale is being settled? Yes, I do that frequently--well, kind of. I usually sell some short TIPS and use the proceeds to buy long TIPS. I'll sometimes buy one more TIPS than the proceeds will cover if I have enough cash in the MM fund. If I don't, then I move the extra cash into the MM fund for next time. Schwab counts your MM fund proceeds as available cash, even though it doesn't show that way on the balances screen. After I do the TIPS trade that puts my cash into the red, I sell exactly enough of the MM fund to cover it. Schwab also counts Treasuries maturin...
by Kevin M
Thu Feb 29, 2024 11:03 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

Schwab now is including the Jul 2024 in their search results. I got a call back from a rep yesterday, and he said they had been filtering them out because of low yields. I pointed out that the Apr 2024 yield had been negative for awhile, yet they still were including them. He couldn't explain that, but at any rate they seem to have fixed it because I complained. 8-) https://i.postimg.cc/L5M531RJ/image.png I just noticed that now they're not including the Oct 2024! :oops: I see in my spreadsheet that it wasn't included yesterday either. I hadn't noticed this before, but it seems that maybe when they added back the Jul 2024s they knocked out the Oct 2024s. They can't blame it on negative yields, as the Oct 2024 bid and ask yields are more tha...
by Kevin M
Thu Feb 29, 2024 10:26 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35050

Re: Can you do better than BND?

martincmartin wrote: Thu Feb 29, 2024 10:03 am
Kevin M wrote: Thu Feb 29, 2024 9:47 am You need to reread the article; you're only getting half of it, and you're getting the Mr. Spock part wrong.
Fair enough, and thanks for the link to the article Kevin! I actually hand't read that, and hadn't realized that Bernstein actually referred to Mr. Spock, I thought that was my addition to the lexicon. :) I'll be sure to align my usage with Bill Bernstein's from now on.
Funny! I was sure you must have read that article, given the Spock reference, and figured you had only partially remembered what Bill said.
by Kevin M
Thu Feb 29, 2024 10:23 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

gavinsiu wrote: Wed Feb 28, 2024 5:01 pm I suggest putting it into bond funds she also do not like the idea because bonds fund could lose money (thank you 2022), so we end up putting it into Money Market at the moment. However, my feeling is that the rate stay high forever.
It's not just your feeling, it's what the inverted yield curve is predicting.

I would at least put her shorter term cash into Treasuries, since the yields are slightly higher than MM fund for shorter term maturities, and you can extend maturity a bit to get higher yields for longer:

Image

So you can get about 5.4% out to almost July, and you can get 5.0% out to about April 2025.
by Kevin M
Thu Feb 29, 2024 10:12 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

I tried buying 1/34 TIPS this morning at Fidelity (20 at $98.398), following the favorable PCE report, figuring that yields will likely decline because of the favorable inflation report. Fido was reporting a YTM of 1.929% My order was canceled. I guess a lot of people have the same idea..... I just tried again (20 at $98.429) YTM 1.925%. Order open.. So I canceled it and tried again (20 at $98.445) YTM 1.923....order canceled. Filled at $98.468 . YTM 1.921%. Still 0.11% better than the yield I got at auction last month. Right. The Jan 2034 ask at one point yesterday was 1.96%; the yield you got was only 4 basis points less. First thing I look at is overall market quotes, and I see today that LPTZ is up about 0.7%, so long TIPS yields will ...
by Kevin M
Thu Feb 29, 2024 9:58 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

You might want to use a TIPS ladder building tool, which will show you both the cost and the annual real income you'll be receiving. Typically we target a desired annual real income/amount (DARI or DARA) for each rung, and we pay whatever the cost is for that DARA for each rung. A simple tools is tipsladder.com, and that's probably good enough for now, but I prefer to use #Cruncher's TIPS ladder spreadsheet, which you can quickly find with a forum search. <snip> I tried to use the tip ladder builder, but it's mostly to pick out tips to generate a certain amount of income per year, but the my needs is sort of the reverse, I really don't care about income but want to preserve purchasing power safely without knowing what the future needs are....
by Kevin M
Thu Feb 29, 2024 9:47 am
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35050

Re: Can you do better than BND?

After all, strictly speaking, the phrase “take your risk on the equity side” implies that the non-equity piece of your portfolio should carry … no risk. In conventional terms, that means short term Treasury bills—not a mix of bonds, some of them corporate, some of them with thirty-year maturities, as in BND. This is exactly why Bill Bernstein suggests short term Treasuries. In his model, and it seems also yours, the reason for bonds is simply to handle your emotions. A perfectly logical Mr. Spock, who saw their investment balance simply as a number on a screen, would go for 100% equities. If bonds are only to sooth the emotions, then short term Treasuries achieve that goal best, according to Bill Bernstein and, it seems, also Professor McQ...
by Kevin M
Wed Feb 28, 2024 1:22 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Vanguard OID, accrued interest, bond premium

There is both accrued interest and amortized bond premium reported for the 1099-INT I'm working on. You can make only one adjustment per 1099-INT. The downloaded 1099-INT has the bond premium in box 12, so I decided to leave the entire amount in box 3, and do the bond premium adjustment in this 1099-INT. I then manually created a dummy 1099-INT, entered 0 in Box 3 (you must enter something), and did the accrued interest adjustment for this 1099-INT. Even if you enter 0 in the 1099-INT, HRB still prompts you to enter an amount on the next page, but if you enter 0, it lets you move on to the adjustment page and finish the 1099-INT. In the past, I've split the interest up between the original and dummy 1099-INTs, but this time I thought I'd j...
by Kevin M
Wed Feb 28, 2024 12:54 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Vanguard OID, accrued interest, bond premium

Kevin M wrote: Wed Feb 28, 2024 12:24 pm VG reports accrued interest for each bond in the Detail for Interest Income section of the consolidated 1099. Not sure what they do if you paid the accrued interest the year before and did not receive an interest payment in the same year. I'll have to research that.
I checked the VG 1099 for 2022 for this account, and I see that the accrued interest was reported in the Detail for Interest Income section for a TIPS that did not pay any interest in 2022. I verified that I made the adjustment for this accrued interest on the 1099-INT for 2022.
by Kevin M
Wed Feb 28, 2024 12:24 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Vanguard OID, accrued interest, bond premium

Thought I'd share a few things about Vanguard reporting of OID, accrued interest, and bond premium on the 1099 consolidated document, and how I handled it with HRB. Vanguard reports OID for each TIPS separately, so you end up with a 1099-OID for each one if you import from Vanguard into HRB. All I did was click Edit, and step through it to remove the red check mark for each one. A couple of the TIPS had negative OID, so the number in box 8 was negative. This worked out fine, as these values end up as negative interest numbers on the Interest Income Summary worksheet, and correctly subtract from total interest. VG reports accrued interest for each bond in the Detail for Interest Income section of the consolidated 1099. Not sure what they do ...
by Kevin M
Wed Feb 28, 2024 11:53 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

Thanks Kevin, The bigger surprise was how much I end up paying, not for the say the transaction cost but the overall cost from the inflation and accrued interest. I might have to think of not getting about 40 since each rung might cost an extra $6K than expected. Can you elaborate if you pay a good price or not. Your criteria seems to be how close to schwab since you indicate schwab prices are the best, but how would one know if they overpaid? Secondly, I am not getting the seasonally adjusted yield. Thanks! You might want to use a TIPS ladder building tool, which will show you both the cost and the annual real income you'll be receiving. Typically we target a desired annual real income/amount (DARI or DARA) for each rung, and we pay whate...
by Kevin M
Wed Feb 28, 2024 10:34 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

Ok please critique my first TIPS order. Quantity 40 CUSIP 912828ZJ2 Order Type Limit Price Price 97.526 Price w/Mark-up 97.526 Effective Yield 2.365068% Inflation Adjusted Limit Price 115.821 Inflation Factor 1.187590 Time in Force Fill or Kill Trade Type Cash Trade Date 02/28/2024 Settlement Date 02/29/2024 Estimated order value, including $0.00 (0.000%) mark-up and $22.23 accrued interest: $46,350.59 So the amount was: ask price/100 x qty x 1000 x inflation + accured interest = 97.256/100 x 40 x 100 x 1.187590 + 22.23 = $46,350.59 Did I pay too much? I started on the bottom rung since if there is a screw up, it would only be an issue for a year. 40 appears to be the best price. Right, you updated your post with the calculation while I wa...
by Kevin M
Wed Feb 28, 2024 10:20 am
Forum: Investing - Theory, News & General
Topic: 30 yr TIPS = 2.2% real!
Replies: 26
Views: 4695

Re: 30 yr TIPS = 2.2% real!

Why hold anything riskier if the goal is peaceful retirement? “30-year TIPS auction gets real yield of 2.20%, highest in 14 years” So in TIPS for Dummy’s, if the real rate is 2.2%, and inflation is 4%, you’d get 6.2% for that 6 month period? Then it resets to 2.2% plus inflation rate for the next six months, for the 30 year term? Thank you. I think you're thinking of I bonds. There's nothing special about a 6-month period for TIPS, other than that's how often you receive an interest payment. With a 2.2% real TIPS yield, your internal rate of return will be about 2.2% real if you hold the TIPS to maturity. Your realized return would depend on the reinvestment rate for the coupons, assuming you reinvested the coupons. So if inflation average...
by Kevin M
Wed Feb 28, 2024 8:50 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

Fido has special pricing for min qty 40 for some TIPS, so for those, that price is better than for min qty 100. The real yield of very short term TIPS is not anything to pay attention to. The Jul 2024 TIPS is trading to be competitive with nominal Treasuries that mature on the same date, since the inflation adjustments are already known through April 1. Even the July 2024 yield doesn't mean much. See my thread, April and July 2024 TIPS - Bogleheads.org . Ok, what would be the price paid I believe the formula you gave was Inflation factor * (ask - bid) However, it's not clear if the minimum is 40, what if I purchase 50 instead, how do I calculate the total price? ask price/100 * qty*1000 * inflation factor + accrued interest Or just click t...
by Kevin M
Tue Feb 27, 2024 3:11 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

You've got it! What this means is that there is a 0.16% difference between the bid and ask prices. The buyer and seller each pay half of that, assuming that the fair price is the midpoint between bid and ask, so the cost to each is 0.08%. This throws me off because I was expecting larger lots to have a lower price, but it appears that this is not the case, since the 40 lot was cheaper than the 100 lot. By the way, is there any reason to buy a bond with a negative yield to maturity. One of the bonds appear to have negative ytm. Fido has special pricing for min qty 40 for some TIPS, so for those, that price is better than for min qty 100. The real yield of very short term TIPS is not anything to pay attention to. The Jul 2024 TIPS is trading...
by Kevin M
Tue Feb 27, 2024 12:00 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

This is mostly a follow up to the post by Kevin M oon Feb 9, 2024 where he layout some calculation. I have been trying to apply this as an exercise. Let's post something from the Fidelity website. So for the bond "UNITED STATES TREASURY 2.37500% 01/15/2025", ask/bid -1 = 100.043 / 99.870 - 1 = 0.17% price at a min quality of 100 For the bond "UNITED STATES TREAS NTS 0.25000% 01/15/2025" ask/bid - 1 = 98.216 / 98.057 - 1 = 0.16% price at a min quantity of 40. I am not sure I am understanding this properly. You've got it! What this means is that there is a 0.16% difference between the bid and ask prices. The buyer and seller each pay half of that, assuming that the fair price is the midpoint between bid and ask, so the co...
by Kevin M
Tue Feb 27, 2024 11:57 am
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

Compare buying a zero coupon bond with 5% YTM for 5 years to a bond that pays a 5% coupon. With the zero coupon you pay $783.53 and get $1000 in Feb 2029. There's nothing to reinvest, hence no reinvestment risk. With the coupon bond, you pay $1000 and get $50 that you have to reinvest each year. You don't know what yield you will get when you reinvest those coupons, it might be more or less than 5%. Thus there's reinvestment risk. It's nothing specific to TIPS, it's for any bond. A lower coupon means less money to reinvest during the term of the bond. Thanks, I am still unclear on the concept. I understand that for a zero coupon, you buy the bond at a discount and realize the gain when the bond mature. A Tbill would be an example of a zero...
by Kevin M
Tue Feb 27, 2024 11:10 am
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5689

July 2024 TIPS

I'm going to expand this thread to include the July 2024 TIPS, because I've sold all of my Apr 2024 TIPS, the situation isn't too different for the Jul 2024, and I sold my first lot of July today to buy longer maturity TIPS for my ladder. The bid price the July 2024 sale executed at was 99.9883, so pretty darn close to 100. Not that it matters much, but the yield at that price is 0.156%. Checking now, the bid price is 99.996, so if I'd waited a few minutes I would have done even better, but it would only have been about a dollar more for quantity 10, so no regrets. The ask price now for min qty 1 at Schwab is 100.061; Schwab does not list a yield, and you must call to buy since the yield is negative. With the proceeds I bought some of two m...
by Kevin M
Tue Feb 27, 2024 10:46 am
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5689

Re: April 2024 TIPS

protagonist wrote: Tue Feb 27, 2024 8:51 am I see no real logic in selling prematurely, other than that there are very favorable yields available now, and what the yields will be in April is unknown.
But that's the only reason I needed! Well, and also that there is no benefit in waiting in terms of the price we receive now relative to the price at maturity, as long as we're swapping into other TIPS (that will provide the same inflation adjustments).
by Kevin M
Mon Feb 26, 2024 7:34 pm
Forum: Investing - Theory, News & General
Topic: Can you do better than BND?
Replies: 278
Views: 35050

Re: Can you do better than BND?

Yes, agreed, but I do not like the positive correlation that occurs during extreme (negative) events between long TIPs (long FI generally) and equities. Short-term correlation doesn't matter if you're buying long TIPS as the closest thing you can get to a riskless long-term asset, assuming the unit of account is real consumption. I don't buy long TIPS with the plan to rebalance into stocks during extreme negative events. Personally I'd use some of my short-term Treasuries for that, although long-term Treasuries have had larger negative correlation during recessionary stock downturns, like late 2008; not so much at all for inflationary downturns like we had more recently. Long TIPS returns have zero correlation to long-term stock returns, w...
by Kevin M
Mon Feb 26, 2024 7:18 pm
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5689

Re: April 2024 TIPS

Apr.2024 TIPS are (acc. to WSJ) selling for bid 100.02/ ask 100.04. Is my understanding correct, that I would get slightly more if I sold my Apr. 2024 TIPS now than if I wait for them to mature? Ultimately I would like to use the proceeds from my 4/2024 TIPS to buy 7/2034 TIPS when they become available. Or I could buy more 1/34s, but I think I would rather spread my investments out more evenly between rungs. All this is probably not worth it, given the trivial differences in value between the 4/24 TIPS now vs. at maturity, especially given the additional accounting issues and the amount lost in the bid/ask spread. The difference between what I would get today vs. waiting for the 4/24s to mature would only be a few dollars per $10K, right?...
by Kevin M
Mon Feb 26, 2024 1:05 pm
Forum: Investing - Theory, News & General
Topic: April and July 2024 TIPS
Replies: 40
Views: 5689

Re: April 2024 TIPS

Today I sold the rest of my Apr 2024 TIPS and used the proceeds to fill out more rungs in my ladder. Ditto for DW. Sale price was 100.1289. I had already sold about 5/6 of them before today.

Not that it matters, but the bid yield was -0.481%. By contrast, for my last sale of Jan 15 2024 TIPS on Jan 8, bid price was 99.8464 and bid yield was 10.031%, which just goes to show how nonsensical the real yields are for these very short maturity TIPS.
by Kevin M
Mon Feb 26, 2024 12:58 pm
Forum: Investing - Theory, News & General
Topic: TIPS Ladder Spreadsheets in General & Two in Particular
Replies: 166
Views: 47582

Re: TIPS Ladder Spreadsheets in General & Two in Particular

I had a need to enter different DARAs for each year, so #Cruncher provided a couple of ways to do that. If anyone is interested in why I wanted to do this, and how it can be implemented, I'm sharing it in this thread: Building a TIPS ladder for IRA RMDs - Bogleheads.org.

Bottom line is that the easiest way to do it is to enter $1 in the DARA cell, B2, and enter the individual DARAs in the multiplier column.
by Kevin M
Mon Feb 26, 2024 12:52 pm
Forum: Investing - Theory, News & General
Topic: Taxation of Treasury bills, notes and bonds
Replies: 1027
Views: 149378

Re: Taxation of Treasury bills, notes and bonds

For 2023, I had 20+ T-bills sold early on Fidelity and they all are in 1099-INT with no supplemental information (ugh) and the transactions did not download automatically into TurboTax into form 8949. So if I want to report accurately, do I need to create 20+ individual sales transactions in 8949/1099-B? Ultimately it doesn't affect my overall return since it's all going to be short term capital gain/loss and doesn't result in using past carryover loss or carrying forward loss to future year. Interesting. Does the amount reported in 1099-INT equal the difference between the sales proceeds and cost? If so, I wouldn't worry about it. Most of the difference between proceeds and cost is going to be accrued acquisition discount, which should be...
by Kevin M
Mon Feb 26, 2024 8:59 am
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2927

Re: Building a TIPS ladder for IRA RMDs

We've now figured out the RMDs in real dollars, which will be the DARA amounts for the TIPS ladder spreadsheet , and now we need to modify the TIPS ladder spreadsheet to use these DARAs instead of a single DARA, as is done by default in the spreadsheet. Note that a modification like this could be used for other purposes for which you want different DARAs for each year. Although my ladder only goes through 2047, I'll do the example spreadsheet modification for a 30y ladder, including the recently issued 2054 TIPS. I copy and paste-value these into two columns of the RMD spreadsheet, so I can copy/paste this table into the TIPS ladder spreadsheet: Year DARA ---- ------ 2025 37,847 2026 38,821 2027 39,662 2028 40,517 2029 41,206 2030 42,086 20...
by Kevin M
Sun Feb 25, 2024 3:38 pm
Forum: Investing - Theory, News & General
Topic: Trading Treasuries (nominal and TIPS)
Replies: 4107
Views: 455427

Re: Trading Treasuries (nominal and TIPS)

Actual results can also vary depending on what you actually paid for a certain amount of TIPS principal and the coupon rate. For a 2% yield, you might buy a TIPS with a coupon of 0.125% at a price less than 100 or one with a 3% coupon at a price above 100, for example. While I haven't stared at enough TIPS to have seen this, I suppose the logic is that the higher coupon rate means I have more $$ to reinvest sooner (earning additional nominal or real yields), and so a higher coupon rate makes a TIPS more valuable (and therefore more expensive) than a lower coupon rate. Another way to think of it is the lower coupon has to provide more of the yield via the principal value at maturity. T-bills have no coupon payments, suppose you pay $950 for...
by Kevin M
Sun Feb 25, 2024 3:14 pm
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2927

Re: Building a TIPS ladder for IRA RMDs

So the DARA for my 2025 RMD using the example values and assumptions is 39,569. (Click the little up arrow to the right of "Kevin M wrote:" if you want to review the last post) I need to correct the math for the first year RMD in nominal and real terms. The IRA value used to determine the first RMD will grow for about one year from the base date (basically today)--from now until 12/31/2024, but the RMD will be taken about two years from the base date, in late 2025. Here are the corrected calculations for the first year RMD: IRA value on 12/31/2024: 1,000,000 * (1+4.55%) = 1,045,504 RMD: 1,045,504 / 26.5 = 39,453 Year 1 DARA = RMD in real dollars: 39,453 / (1 + 2.10%) ^ 2 = 37,847 With the math to calculate the first year RMD work...
by Kevin M
Sun Feb 25, 2024 10:36 am
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2927

Re: Building a TIPS ladder for IRA RMDs

My analysis has used assumed real rates of growth to estimate the expected real tIRA balance (in today's dollars) at some future time. Then the expected real RMD (in today's dollars) is calculated as the expected real tIRA balance at the future date divided by the life expectancy factor at that age. As best I can follow your method, it seems to be more complex, estimating future nominal tIRA balance, which is used to calculate estimated nominal RMD, then deflating to estimate the future real RMD. Probably more precise under the given assumptions, but I wonder how different the result would be and whether worth the effort given the uncertainty in the assumptions? <snip> You are absolutely correct. I started down the path you took, but the n...
by Kevin M
Sun Feb 25, 2024 10:23 am
Forum: Investing - Theory, News & General
Topic: Building a TIPS ladder for IRA RMDs
Replies: 22
Views: 2927

Re: Building a TIPS ladder for IRA RMDs

My understanding is that the RMD for 2025 will be based on the tIRA balance on December 31,2024 (less than 1 year from now). Why are you increasing the assumed $1M value by 2 years growth when calculating the expected RMD for 2025? As you mention later, because I plan to take my RMD late in the year, as I have been doing from my inherited IRA, so closer to 2 years from now than 1. I realize now that my brain was not working correctly here. As you say, the 2025 distribution is based on the value at the end of 2024, so it doesn't matter when in 2025 I take my distribution. I should only be assuming one year of growth for the IRA value, and one year of inflation for deflating the RMD value . EDIT. I actually should assume two years of inflati...