Are I Bonds a part of your portfolio?

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frugalhen
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Are I Bonds a part of your portfolio?

Post by frugalhen » Wed Apr 30, 2014 6:43 pm

Do you own I bonds? If so, why? Specifically, what are they in place of/meant to augment in your portfolio?
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Rooster1
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Re: Are I Bonds a part of your portfolio?

Post by Rooster1 » Wed Apr 30, 2014 6:49 pm

Yes.

Emergency Fund.

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Re: Are I Bonds a part of your portfolio?

Post by ab80 » Wed Apr 30, 2014 6:54 pm

"Do you own I Bonds?" and "Are I Bonds a part of your portfolio?" are two different questions. Many people own I Bonds as part of their emergency fund. If you can get past the first year, it's better than an online savings account. Maybe not as good as some short term bond funds (but maybe better).

But that doesn't mean it's best as part of a retirement portfolio. One advantage is tax deferral. Rates have been pretty high in the past, so if you can lock in a high interest rate, go for it.

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Re: Are I Bonds a part of your portfolio?

Post by Johm221122 » Wed Apr 30, 2014 6:56 pm

ChopWoodCarryWater wrote:Yes.

Emergency Fund.
+1 EF and part of fixed income in my AA

John

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Re: Are I Bonds a part of your portfolio?

Post by abuss368 » Wed Apr 30, 2014 6:58 pm

We do not own any I bonds and do not plan to invest in them. Low cost, diversified, and total market mutual funds from Vanguard is all that is needed.
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Re: Are I Bonds a part of your portfolio?

Post by Grt2bOutdoors » Wed Apr 30, 2014 7:04 pm

Yes. Started buying them as part of a E-fund intended to pay one years worth of expenses, back in 2000 and 2001 (my pre-Boglehead days and before I became acquainted with the term "back up the truck" :D ) they were paying rates of 3.4 and 3.6 and 3.0 fixed plus inflation, I thought that was a good deal. The even better deal was the Treasury allowing me to you a cashback credit card to make the purchases. Ah! The good ole days. :sharebeer Now, they serve as part of my fixed income allocation - those rates aren't coming back anytime soon.
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Re: Are I Bonds a part of your portfolio?

Post by JDDS » Wed Apr 30, 2014 7:16 pm

I'm accumulating them for my emergency fund; I haven't decided if they'll play a larger role after that's finished (this year).

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Re: Are I Bonds a part of your portfolio?

Post by Steelersfan » Wed Apr 30, 2014 7:33 pm

I've got about $40k of my retirement portfolio in I-bonds that I bought when the rates were pretty good. I wish I had more.

I haven't added to them in many years.

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Re: Are I Bonds a part of your portfolio?

Post by pjstack » Wed Apr 30, 2014 7:40 pm

Yes, I own I-Bonds.
They are about the only tax deferred avenue available to me because my military pension is not considered earned income (therefore ineligible for IRA's).
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Re: Are I Bonds a part of your portfolio?

Post by S&L1940 » Wed Apr 30, 2014 7:56 pm

Johm221122 wrote:
ChopWoodCarryWater wrote:Yes.
Emergency Fund.
+1 EF and part of fixed income in my AA
John
Came late to I Bonds - started in '08 - and continue to add as part of my AA fixed and as emergency fund
For Required Minimum Distributions I am selling off our Tips funds and rolling them over into I Bonds (AA holdings are at 50/50)
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Re: Are I Bonds a part of your portfolio?

Post by Raybo » Wed Apr 30, 2014 8:16 pm

I bought IBonds when cash back credit cards could be used and one could buy $20K a year. While many of them were cashed to fund a house remodel several years ago, I still have a goodly amount of them (more than 5% of my portfolio).

I have been retired since 2000 and am now entering my Social Security era (I turn 62 in a few days). I have decided to (slowly) build a liability matching portfolio. But, since I don't plan on taking social security until I am 70 and the return on short-term TIPS is negative, I have turned my IBonds into the beginning of my LMP. I am buying the max each year and will have a nice sized pile of them by the time I turn 70 and it will cover the first several years of the shortfall I will have between my (current and estimated) expenses and my SS payment.

I am funding the IBond purchases by selling the TIPS fund in my IRA, buying TSM there, and then selling TSM in my taxable account and buying the IBonds. This does cause some capital gains taxes on the execution of this strategy, but such is life. I like this method as it doesn't change my AA and eliminates the negative interest rates currently charged to buy short-term TIPS. If interest rates on TIPS rise, I will change course and buy TIPS, instead, though doing so (in my IRA) will expose the entire amount, principal and interest, to income tax.
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Re: Are I Bonds a part of your portfolio?

Post by nisiprius » Wed Apr 30, 2014 8:31 pm

frugalhen wrote:Do you own I bonds?
Yes.
If so, why?
1) They are the closest thing to a riskless investment I know. 2) Unlike regular marketable bonds, they have no interest rate risk. Like cash, or like a bank account, whatever number of dollars I have in I bonds, I will have a larger number of dollars a month later. Unlike cash or a bank account, not only the number of dollars but their purchasing power (before taxes) will be larger a month later. Their dollar value never goes down, their purchasing power (before taxes) never goes down. 3) Generally speaking, as close as I can guess, the actual return in I bonds has always pretty much on a par with those of the best bank accounts and CDs.
Specifically, what are they in place of/meant to augment in your portfolio?
They aren't meant to be in place of anything. They are a unique investment with different properties from anything else. If you want to pin me down, I guess I would say they are "inflation-indexed cash" and are in place of bank accounts, bank CDs, and money market funds.

Unfortunately, there are a fair number of nuisances and annoyances that are also unique to them: the one-year waiting period, the small penalty for withdrawal before five years, the low annual purchase limit, the troublesome Treasury Direct website and inability to hold them anywhere else).

They're pretty good though, and I think anyone who looks at them with clear eyes comes to the conclusion that they're pretty good. In my cynical opinion, the reason you don't hear much about them from "mainstream" advisors, investment books, or the financial press is that nobody in the investment industry makes any money from them. And, of course, they are boring--there is no way at all that anyone is ever going to "make a killing" on them.
Last edited by nisiprius on Thu May 01, 2014 8:19 am, edited 3 times in total.
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Re: Are I Bonds a part of your portfolio?

Post by Tortoise » Wed Apr 30, 2014 8:32 pm

I continue to buy the maximum allowed each year for myself and my wife. They are part of the fixed income portion of our portfolio. In addition to being tax deferred, earnings are state tax free, which is pretty high in California. They can also be used for allowable college expenses and be withdrawn completely tax free. Our son is 13, so they will help fill out his college fund in another 5 years.
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Re: Are I Bonds a part of your portfolio?

Post by TheGreyingDuke » Wed Apr 30, 2014 8:39 pm

I buy $45k each year ($10k each for me, DW, my trust, DW's trust) and $5k when I overpay my estimated taxes and get the refund in $5k worth of bonds.

It fits into my fixed income bucket, along with CDs, bond funds, some individual TIPS from back in the 3.8% days, and a CIT savings account that pays .85%. I don't keep real close track of it all, but more looking for the gestalt. Not sure if or when I will use them.

Had a log in issue at Treasury Direct, sent a message and the next morning I got a call from a staff person in W. Va. who was very helpful and got things straightened out (it was operator error after all.)
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Re: Are I Bonds a part of your portfolio?

Post by bhsince87 » Wed Apr 30, 2014 8:41 pm

No. I use CD's in that role.

But I probably would have jumped on them back in the "good ole days" when they offered 2-3% real returns. But I didn't even know they existed then! :oops:
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Re: Are I Bonds a part of your portfolio?

Post by Peter Foley » Wed Apr 30, 2014 8:42 pm

Yes. Some purchased and some inherited (I had my mother investing in I-bonds early on when the base rate was 2% or better).

I've not purchased any in years because I want paper bonds and some rate above inflation.

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Re: Are I Bonds a part of your portfolio?

Post by poker27 » Wed Apr 30, 2014 10:15 pm

I bought 10k last year, will be buying another 10k this year to serve as half of my EF. I haven't decided if I will continue to buy in future years, I guess we will see.

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Re: Are I Bonds a part of your portfolio?

Post by Clever_Username » Wed Apr 30, 2014 11:16 pm

nisiprius wrote:If you want to pin me down, I guess I would say they are "interest-indexed cash" and are in place of bank accounts, bank CDs, and money market funds.
Do you mean "inflation-indexed cash" here?

Because I think that's a great term for what I intend to use mine for.
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Re: Are I Bonds a part of your portfolio?

Post by jeff1949 » Wed Apr 30, 2014 11:20 pm

Grt2bOutdoors wrote:Yes. Started buying them as part of a E-fund intended to pay one years worth of expenses, back in 2000 and 2001 (my pre-Boglehead days and before I became acquainted with the term "back up the truck" :D ) they were paying rates of 3.4 and 3.6 and 3.0 fixed plus inflation, I thought that was a good deal. The even better deal was the Treasury allowing me to you a cashback credit card to make the purchases. Ah! The good ole days. :sharebeer Now, they serve as part of my fixed income allocation - those rates aren't coming back anytime soon.
What he said, and with a 2% rebate card to boot. :sharebeer

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Re: Are I Bonds a part of your portfolio?

Post by GerryL » Thu May 01, 2014 12:17 am

Bought some I bonds back in 2000 and 2001 after reading something about them in a personal finance column. Rates were quite high and they have continued to grow nicely. It was extra savings I had on hand. Years ago when I was in the Air Force I used a raise to start buying monthly E bonds. That turned out well so I figured let's try something else backed by the govt.

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Re: Are I Bonds a part of your portfolio?

Post by Sheepdog » Thu May 01, 2014 2:03 am

20% of my investments are in I Bonds as part of my in-retirement portfolio, All were purchased in the "good ole days" (3.0 to 3.6% bonds). They are part of my overall tax deferred portfolio. I do not believe that I will need to cash them in my lifetime for normal expenses as I will be 97 to 98 when they mature, but if I live past that, I'll have a heckuva party. At this point in my life, if I have to go in to long term care, they would be used for that purpose since I was unable to buy a LTC policy. Other than that, they will be inherited. (Thank you again, Mel, for that great advice back then.)
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Re: Are I Bonds a part of your portfolio?

Post by Blues » Thu May 01, 2014 8:06 am

I view the money set aside in I-Bonds as funds available for that eventual rainy day...new roof, new vehicle, etc.

They may not be a sexy investment instrument but they do have a place in one's portfolio imho. That said, they are not an essential part of our portfolio.
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Re: Are I Bonds a part of your portfolio?

Post by Jack FFR1846 » Thu May 01, 2014 8:14 am

I started buying iBonds because my wife and I were young and working and had plenty of extra cash. I had no goal then. (early 90s).

My dad then later told me about buying iBonds online with a credit card. I bought bonds to the limit for all of my family members. The miles attained upgraded all of us to 1st class on our trips to Aruba. I sold older bonds to pay the cc bills when they arrived.

I realized that I could use the bonds to get similar interest as I did from my credit union money market fund. Since I had plenty of old, redeemable bonds, I used this as my savings account. I could get by with only a few hundred dollars in savings/checking and sell bonds occationally to pay for bigger needs. No state tax when cashed.

After doing this for a while, it became habbit. I'm glad I did it. I currently have about $350k in i and ee bonds. Some of this is ready for college expenses for my high school senior son. I've pulled money out in the past to pay for new cars when replacement was needed.

Once paper bonds disappeared, I stopped. My one encounter with treasury direct to transfer and cash a couple bonds following my dad's passing kept me away. I may give them another chance as I have some money doing nothing at the moment.
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Re: Are I Bonds a part of your portfolio?

Post by sls239 » Thu May 01, 2014 8:20 am

We just finished rolling our e-fund over to I-bonds.

Next up is college savings. We have an ESA but obviously the contribution limit is $2K / year. The 529 for our state has fairly high expenses. So I-bonds IMO are a reasonable place to turn to for that.

That of course means we are within the income limits, and most likely will remain so.

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Re: Are I Bonds a part of your portfolio?

Post by nisiprius » Thu May 01, 2014 8:20 am

Clever_Username wrote:
nisiprius wrote:If you want to pin me down, I guess I would say they are "interest-indexed cash" and are in place of bank accounts, bank CDs, and money market funds.
...Do you mean "inflation-indexed cash" here?...
Yes, thanks. Fixed it.
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Re: Are I Bonds a part of your portfolio?

Post by donaldfair71 » Thu May 01, 2014 8:26 am

I own I Bonds. For me, it's the perfect short terms savings vehicle. I use them for my Emergency Fund and my "Next Car" fund.

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Re: Are I Bonds a part of your portfolio?

Post by ab80 » Thu May 01, 2014 8:38 am

(Slightly OT) aren't the new rates supposed to be announced today?

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Re: Are I Bonds a part of your portfolio?

Post by Jack FFR1846 » Thu May 01, 2014 8:55 am

ab80 wrote:(Slightly OT) aren't the new rates supposed to be announced today?

any minute now
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Re: Are I Bonds a part of your portfolio?

Post by letsgobobby » Thu May 01, 2014 8:58 am

yes we buy our annual allotment and have been buying for about 5 years. It's a way to expand our tax-advantaged space and we needed more bonds. Definitely missed the glory days of I bonds though - buying $60k per year per couple with a credit card and earning 2-3% fixed rate to boot.

I don't think they're great return instruments (obviously), but it's a safe emergency fund, and part of a retirement annuity.

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Re: Are I Bonds a part of your portfolio?

Post by midareff » Thu May 01, 2014 8:59 am

Not a part and no plans to add. Have enough bonds with Ltd Term Muni, IT Muni, ST IG, IT IG and HY.

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Re: Are I Bonds a part of your portfolio?

Post by jlgrandam » Thu May 01, 2014 9:03 am

New rate is 0.1% fixed, 1.94% total.

http://www.treasurydirect.gov/news/pres ... atespr.htm

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Re: Are I Bonds a part of your portfolio?

Post by TheTimeLord » Thu May 01, 2014 9:07 am

jlgrandam wrote:New rate is 0.1% fixed, 1.94% total.

http://www.treasurydirect.gov/news/pres ... atespr.htm

Nooooo! We didn't I buy yesterday, why why? (Actually bought $5K Monday)
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Re: Are I Bonds a part of your portfolio?

Post by TheTimeLord » Thu May 01, 2014 9:08 am

donaldfair71 wrote:I own I Bonds. For me, it's the perfect short terms savings vehicle. I use them for my Emergency Fund and my "Next Car" fund.
Pretty much the same here plus I am accumulating money that might have to be used to help care for my MIL in the next 5-10 years in I-Bonds also.
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Re: Are I Bonds a part of your portfolio?

Post by Grt2bOutdoors » Thu May 01, 2014 9:09 am

StarbuxInvestor wrote:
jlgrandam wrote:New rate is 0.1% fixed, 1.94% total.

http://www.treasurydirect.gov/news/pres ... atespr.htm

Nooooo! We didn't I buy yesterday, why why? (Actually bought $5K Monday)
Bought half on Tuesday, not sure if I will be picking up more this year.
The other interesting thing is they raised the rates on the EE bond from 0.20% to 0.50%. That's a marked improvement.
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Re: Are I Bonds a part of your portfolio?

Post by TheTimeLord » Thu May 01, 2014 9:22 am

Grt2bOutdoors wrote:
StarbuxInvestor wrote:
jlgrandam wrote:New rate is 0.1% fixed, 1.94% total.

http://www.treasurydirect.gov/news/pres ... atespr.htm

Nooooo! We didn't I buy yesterday, why why? (Actually bought $5K Monday)
Bought half on Tuesday, not sure if I will be picking up more this year.
The other interesting thing is they raised the rates on the EE bond from 0.20% to 0.50%. That's a marked improvement.
I will still pick up our full allotment this year considering what a savings account pays and the cash outlays we are anticipating in the next 5-10 years (which should be post retirement).
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Re: Are I Bonds a part of your portfolio?

Post by Sheepdog » Thu May 01, 2014 10:01 am

Grt2bOutdoors wrote:
The other interesting thing is they raised the rates on the EE bond from 0.20% to 0.50%. That's a marked improvement.
The 20 year maturity value of EE Bonds remained the same, however.

Quote from TreasuryDirect.gov
All Series EE bonds issued since May 2005 earn a fixed rate in the first 20 years after issue. At 20 years, the bonds will be worth at least two times their purchase price.
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Re: Are I Bonds a part of your portfolio?

Post by LK2012 » Thu May 01, 2014 1:26 pm

StarbuxInvestor wrote:
jlgrandam wrote:New rate is 0.1% fixed, 1.94% total.

http://www.treasurydirect.gov/news/pres ... atespr.htm

Nooooo! We didn't I buy yesterday, why why? (Actually bought $5K Monday)

Ha ha! I feel the same way. I really thought they would stay at 0.2% or increase.

Oh, well. I did pick up $5000 in April through my tax return. Now I'll either buy more soon, or think about how things look in November.

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Re: Are I Bonds a part of your portfolio?

Post by Kalo » Thu May 01, 2014 3:08 pm

Bought 10k last Nov at the .2 fixed. Will now wait until next Nov to buy 10k. Emergency fund slash liability matching is purpose. Bogleheads has taught me conservative and diversification philosophies.

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Re: Are I Bonds a part of your portfolio?

Post by placeholder » Thu May 01, 2014 4:41 pm

No because they're a drop in the bucket for my fixed income allotment and there's significant new complexity in opening and maintaining a Treasury Direct account that I don't want to mess with.

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Re: Are I Bonds a part of your portfolio?

Post by TheTimeLord » Thu May 01, 2014 4:53 pm

placeholder wrote:there's significant new complexity in opening and maintaining a Treasury Direct account that I don't want to mess with.
?????
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Re: Are I Bonds a part of your portfolio?

Post by Clever_Username » Thu May 01, 2014 6:44 pm

StarbuxInvestor wrote:
placeholder wrote:there's significant new complexity in opening and maintaining a Treasury Direct account that I don't want to mess with.
?????
I think the "drop in the bucket" part plays into it. Suppose your portfolio's bond allocation (and whatever you lump with bonds, if you lump anything with them) totaled $2M, and you were still accumulating. Even maxing out iBonds is such a small portion of that, it might not be worth it to add another account to track them.

By contrast, my total bond holdings are about $40k (not including CY 2014 I-Bonds), so it's worth it to me to have a Treasury Direct account to hold them.
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Re: Are I Bonds a part of your portfolio?

Post by hudson » Thu May 01, 2014 6:57 pm

nisiprius wrote:
frugalhen wrote:Do you own I bonds?
Yes.
If so, why?
1) They are the closest thing to a riskless investment I know. 2) Unlike regular marketable bonds, they have no interest rate risk. Like cash, or like a bank account, whatever number of dollars I have in I bonds, I will have a larger number of dollars a month later. Unlike cash or a bank account, not only the number of dollars but their purchasing power (before taxes) will be larger a month later. Their dollar value never goes down, their purchasing power (before taxes) never goes down. 3) Generally speaking, as close as I can guess, the actual return in I bonds has always pretty much on a par with those of the best bank accounts and CDs.
Specifically, what are they in place of/meant to augment in your portfolio?
They aren't meant to be in place of anything. They are a unique investment with different properties from anything else. If you want to pin me down, I guess I would say they are "inflation-indexed cash" and are in place of bank accounts, bank CDs, and money market funds.

Unfortunately, there are a fair number of nuisances and annoyances that are also unique to them: the one-year waiting period, the small penalty for withdrawal before five years, the low annual purchase limit, the troublesome Treasury Direct website and inability to hold them anywhere else).

They're pretty good though, and I think anyone who looks at them with clear eyes comes to the conclusion that they're pretty good. In my cynical opinion, the reason you don't hear much about them from "mainstream" advisors, investment books, or the financial press is that nobody in the investment industry makes any money from them. And, of course, they are boring--there is no way at all that anyone is ever going to "make a killing" on them.
For the above reasons I Bonds are part of my portfolio...fire and forget for 30 years....and let inflation rear its angry head.

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Re: Are I Bonds a part of your portfolio?

Post by placeholder » Thu May 01, 2014 7:41 pm

StarbuxInvestor wrote:
placeholder wrote:there's significant new complexity in opening and maintaining a Treasury Direct account that I don't want to mess with.
?????
What is confusing you?

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Re: Are I Bonds a part of your portfolio?

Post by sscritic » Thu May 01, 2014 8:00 pm

Sure there is!

a reason to own I Bonds. It's all about the pictures. That is why my 4 and 5 year old granddaughters have paper I bonds. And, as I understand it, why people give interest free loans to the IRS, just for the pretty pictures. I have always liked Chief Joseph of the Nez Perce, but you have to be careful about how much you loan the IRS. If you are not careful, you will get a bunch of Helen Kellers and Albert Einsteins, although many are able to snag a Chief Joseph.

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Re: Are I Bonds a part of your portfolio?

Post by scone » Thu May 01, 2014 8:01 pm

Does the income from iBonds count towards your AGI to calculate social security taxation? If that's so, and the rates being so low, maybe using the money for a Roth conversion gives a better result?
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

sscritic
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Re: Are I Bonds a part of your portfolio?

Post by sscritic » Thu May 01, 2014 8:15 pm

scone wrote:Does the income from iBonds count towards your AGI to calculate social security taxation?
Sure there is!

taxation of interest. And interest is included in the calculation of what percentage of your social security is taxable. But interest income is only income in the years that you either choose or are forced to take it. My 4 and 5 year old granddaughters choose to take it every year, as they have a standard deduction of $1000 and much less than that in accrued interest, so they pay no tax on their I bond income. Besides, even in 30 years they will be only 34 and 35, so they won't have to worry about their social security being taxed. Unless one of my children dies and my grandchildren are collecting benefits at age 14. Hmm. I still think they will be under the limit, but we will have to wait and see. The limit is not indexed for inflation, but your benefits are.

Then again, if you are of a certain age and a certain income, 85% of your SS will be taxed, so extra income from I bonds won't push you over 85%. [That's called a safe harbor.]

P.S. To learn more, read the wiki
http://www.bogleheads.org/wiki/Taxation ... y_benefits

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Re: Are I Bonds a part of your portfolio?

Post by sscritic » Thu May 01, 2014 8:23 pm

Sure there is!

a reason to take your interest early. If you are not in the 85% safe harbor, the year before you start SS you should either redeem all your bonds or report all the accumulated interest.

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zaboomafoozarg
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Re: Are I Bonds a part of your portfolio?

Post by zaboomafoozarg » Thu May 01, 2014 9:22 pm

Yes. Inflation protection.

Needs a poll!

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nebraskaman
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Re: Are I Bonds a part of your portfolio?

Post by nebraskaman » Thu May 01, 2014 9:47 pm

I have no where near the income that I can afford to max out I Bond purchases each year but I have started purchasing as much as I can afford each month which is about $50 to $100. I purchase these with what little discretionary money I have left over each month and I count it towards bolstering my fledgling EF. I hope to continue this practice throughout my accumulation years until it grows to a decent sum. I count it towards both the EF and as a bond allocation in my portfolio. I find this approach as a welcome addition to my EF which is primarily my Roth. The hope is that I could tap these funds prior to needing to tap the Roth (just need to make it past that one year mark!). I leave about $500 in an online savings as well.

The plan would be a "poor man's" tiered EF. $500 in online savings, then I Bonds, then Roth. I have stopped contributing to the savings account and use that money towards the I Bonds. Hopefully I do not have anything happen in the next few years and can build that I Bond portion into a full blown EF nest egg.
The early bird gets the worm but the second mouse gets the cheese.

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Re: Are I Bonds a part of your portfolio?

Post by Sagenick48 » Fri May 02, 2014 7:16 am

Yes, for the first time this April when I got some bonds as part of my tax refund.

I have not gotten them in the past because I have a bunch of E bonds that are going to be maturing (and automatically cashed in) in the next 6 years. The E bonds are in a Treasury Direct Account and so I will be rolling them over into I's as they mature.

I agree with the comments that the I's are like an emergency fund once the one year passes. That is how I treated the E's.

There is a risk factor, probably slight, to consider. The tax deferral feature could always be changed by the government. I am not saying it will happen but when I bought the E's you could convert them at maturity to H's without paying tax and take the $ out over10 years. The government changed the rules and you can't do that anymore. I had planned on using the H's for retirement income so I am still little pissed that the rules got changed.
The market goes up, the market goes down.

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