Page 1 of 1

Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sat Mar 02, 2019 8:35 pm
by jules
Thinking of liquidating our emergency fund I Bonds this year while we're in the 12% tax bracket.
Because Treasury Direct is too complex for my wife to deal with if I get hit by a bus. And I want to simplify/consolidate.

Potential plan:

1. In 2019, liquidate the portion of I Bonds over 5 years old -- only to the extent that we would not be bumped into the next tax bracket?
Then dump the remainder in 2020, after 5 years of holding.

^ Is this a good plan? Am I missing anything?

2. Where is the best place in Vanguard to put an emergency fund? I thought about Vanguard's Prime Money Market Fund, but the return there is not as good as I Bonds. Looking for something with these traits: low-complexity, low expense ratio, high tax-efficiency, stability, and similar or better interest rates than I Bonds. Interest rates on our I Bonds range from 2.32% - 3.53%. They were issued between 2003-2015.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sat Mar 02, 2019 10:28 pm
by oldcomputerguy
If this is your emergency fund, I’d suggest you put it either ina money market fund or in an online bank such as Ally that pays 2% or so. To get higher returns than you were getting with the I bonds, you’ll likely need to invest in equities, which is probably riskier than you want for your emergency fund. I have mine at Ally.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sat Mar 02, 2019 10:49 pm
by jules
Thanks for the reply. I should clarify: my true first line emergency fund is one credit card followed by what’s in checking and perhaps what I have in my Vanguard Prime settlement account.

So with the current I Bonds, we’re really talking 4th tier emergency fund, in the event of long term job loss or an extended out of pocket chain of medical expenses.

I’m really trying to simplify and consolidate, so I’m looking for something specifically at Vanguard, and I’m comfortable with a little bit more risk compared to just the Vanguard Prime account. Do you or anyone else have any other suggestions?

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sat Mar 02, 2019 11:15 pm
by emlowe
You will not get something better than VMMXX Prime Money Markey - 7-day yield is currently %2.46 (as of 3/1/19)

Unless you want to put it in BND as part of your bond allocation portfolio

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sat Mar 02, 2019 11:23 pm
by jules
OK, thanks. Let’s say I go with VMMXX. Can anyone point out any potential flaws or things I haven’t considered in the below plan for selling the bonds?

Quoting from original post:
In 2019, liquidate the portion of I Bonds over 5 years old -- only to the extent that we would not be bumped into the next tax bracket? (From 12% to 22%)
Then dump the remainder in 2020, after 5 years of holding. (Probably will still be in 12% in 2020.)

^ Is this a good plan? Am I missing anything?

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sat Mar 02, 2019 11:33 pm
by goaties
I would consider keeping the oldest ones--say, the 2003 thru 2007. That's because the fixed rate which is used to calculate your interest rate is quite a bit higher than for the newer ones:

https://www.treasurydirect.gov/indiv/re ... .htm#fixed

The Treasury might never again offer a fixed rate that good, especially now that they (and banks) have discovered that people will settle for a paltry 2%-ish rate on their savings.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sat Mar 02, 2019 11:39 pm
by emlowe
Keep in mind that after you sell and put money into VMMXX, that fund will throw off regular taxable interest.

If you want non-taxable interest, there are other money markets to look at that use muni's to avoid taxes.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 12:09 am
by BL
goaties wrote:
Sat Mar 02, 2019 11:33 pm
I would consider keeping the oldest ones--say, the 2003 thru 2007. That's because the fixed rate which is used to calculate your interest rate is quite a bit higher than for the newer ones:

https://www.treasurydirect.gov/indiv/re ... .htm#fixed

The Treasury might never again offer a fixed rate that good, especially now that they (and banks) have discovered that people will settle for a paltry 2%-ish rate on their savings.
+1
I did something similar for similar reasons. Bought CDs and Prime instead.

Suggest you have spouse cash in some for practice. It is quite simple. You can sell as little as $25.00, I believe, if necessary. Those I sold were not more than 0.1 fixed rate. If I had the earlier ones, I would wait as long as possible to sell them due to higher rates. I may wait until next year to finish selling them when income will be temporarily lower.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 1:31 am
by jules
goaties wrote:
Sat Mar 02, 2019 11:33 pm
I would consider keeping the oldest ones--say, the 2003 thru 2007. That's because the fixed rate which is used to calculate your interest rate is quite a bit higher than for the newer ones:

https://www.treasurydirect.gov/indiv/re ... .htm#fixed

The Treasury might never again offer a fixed rate that good, especially now that they (and banks) have discovered that people will settle for a paltry 2%-ish rate on their savings.
Interesting suggestion. I considered it, but the amount of money in the 2003-2007 bonds adds up to less than $5000. If I kept the money in those bonds until their 30-year maturities, I'd probably gain ~$2000 more than if I'd left it in Prime. Not insubstantial, but I'd rather have it at Vanguard for the reasons already stated in the first post.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 2:10 am
by jules
emlowe wrote:
Sat Mar 02, 2019 11:39 pm
Keep in mind that after you sell and put money into VMMXX, that fund will throw off regular taxable interest.

If you want non-taxable interest, there are other money markets to look at that use muni's to avoid taxes.
Good point, I hadn’t thought of that. But Vanguard says:
Am I in one of the higher tax brackets?
If you're not, tax-exempt funds probably aren't the right fit. You likely won't save enough in taxes to make up for the lower yields you typically get from a tax-exempt fund.
I’m not in a high tax bracket and don’t expect to be in the next couple years. If I do start gaining a few years out though, are there any you’d recommend? I don’t live in NJ, NY, PA, or CA.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 8:11 am
by goaties
Vanguard Treasury Money Market Fund is 100% exempt from state income taxes. Vanguard Prime Money Market was, for 2018, 28% exempt from state income taxes--if your state exempts income from treasuries. I think most of them do.
https://personal.vanguard.com/pdf/USGO_012019.pdf

I did the math for my state (income tax 5.5%) and Treasury ends up not yielding as much as after-tax Prime. You'll need to do your own calculation and it does change over time.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 8:24 am
by Rainier
Good decision, TD is a major headache. I'd just auto roll short term treasuries at Fidelity. No cost to buy or sell.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 9:07 am
by NoHeat
Another solution might be to redeem the electronic I-bonds and use the proceeds to buy paper I-bonds. The paper kind can later be redeemed by just taking them to a bank branch, which should make things easier for the surviving spouse.

The way to buy the paper bonds is during the tax return.
https://www.treasurydirect.gov/indiv/re ... eature.htm
Fill out form 8888, which looks easy. It allows you to specify the beneficiary’s name.
https://www.irs.gov/pub/irs-pdf/f8888.pdf

The procedure to be followed after your death, by the beneficiary of a paper bond, is spelled out, and looks no worse than other stuff the survivor would have to do. Maybe print these instructions and store them with the paper bonds.
https://www.treasurydirect.gov/indiv/re ... edeath.htm

I haven’t tried it — maybe another BH has.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 9:12 am
by Every things free
Dealing with Treasury Direct after getting hit by a bus. My thoughts also. I've dealt with TD for years. No more.
As a moat to protect my other investments I went with VWIUX and VBTLX.

Back to the bus. My 80+ year old grandmother was boarding a city bus in Buffalo years ago. The door closed on her coat and dragged her down the road. She survived.

Kim

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 11:26 am
by emlowe
jules wrote:
Sun Mar 03, 2019 2:10 am
emlowe wrote:
Sat Mar 02, 2019 11:39 pm
Keep in mind that after you sell and put money into VMMXX, that fund will throw off regular taxable interest.

If you want non-taxable interest, there are other money markets to look at that use muni's to avoid taxes.
Good point, I hadn’t thought of that. But Vanguard says:
Am I in one of the higher tax brackets?
If you're not, tax-exempt funds probably aren't the right fit. You likely won't save enough in taxes to make up for the lower yields you typically get from a tax-exempt fund.
I’m not in a high tax bracket and don’t expect to be in the next couple years. If I do start gaining a few years out though, are there any you’d recommend? I don’t live in NJ, NY, PA, or CA.
Yes, usually you need to be in a high bracket before the yield starts to make sense. However, if you want to avoid taxes for ACA or other reasons, then you can consider Vanguard Municipal Money Market Fund (VMSXX). This is the national muni money market fund. It will be federal tax-free.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 1:54 pm
by digit8
Rainier wrote:
Sun Mar 03, 2019 8:24 am
Good decision, TD is a major headache. I'd just auto roll short term treasuries at Fidelity. No cost to buy or sell.
+1. I think the problems associated with TD get overblown to some degree, but certainly aren't enough to justify the very moderate difference in returns available via (for me) Vanguard and my credit union.

I used to make the comparison of I Bonds with duct tape for their versatility. I've found in practice a more apt comparison might be with a knickknack shelf- purchases that seemed like a good idea at the time, which become just another item needing maintenance, time and trouble.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 2:19 pm
by NoHeat
digit8 wrote:
Sun Mar 03, 2019 1:54 pm

I used to make the comparison of I Bonds with duct tape for their versatility. I've found in practice a more apt comparison might be with a knickknack shelf- purchases that seemed like a good idea at the time, which become just another item needing maintenance, time and trouble.
There are no taxes to pay until you redeem. The asset just sits there, tracking the inflation index automatically. So what is the maintenance and trouble that you speak of?

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 10:44 pm
by digit8
NoHeat wrote:
Sun Mar 03, 2019 2:19 pm
digit8 wrote:
Sun Mar 03, 2019 1:54 pm

I used to make the comparison of I Bonds with duct tape for their versatility. I've found in practice a more apt comparison might be with a knickknack shelf- purchases that seemed like a good idea at the time, which become just another item needing maintenance, time and trouble.
There are no taxes to pay until you redeem. The asset just sits there, tracking the inflation index automatically. So what is the maintenance and trouble that you speak of?
1) Another websites security concerns to track (password, periodic checking to verify no unusual transactions), as well as go to separately for any purchases/withdrawals
2) another set of investment to track (I’ve worked in banking for 14 years. EVERY automated calculation can make mistakes)
3) when cashed, another set or tax returns to dither with
4) another place to check in with in case of identity theft, or for my wife to deal with when I pass( #2 applies to automated transfers of ownership as well)

Etc. Again, all very modest problems. But at one point I ran the numbers and figured those problems weren’t buying me much more then a couple of lunches per month.....I went to salad once a week and sold the Ibonds. Lost 10 pounds, to boot.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 11:43 pm
by beyou
Since you are not putting this money into an IRA, TIPS bonds are not ideal but I think the Short-Term Federal is a good alternative to Savings bonds.
VSGDX yields 2.6 today, lower than I bonds now but close enough and good as a lower tier emergency fund as you desire.

I too worry about complexity for my wife, but we are in 50s, my plan was to liquidate over time not strictly by what is most tax advantaged,
but also to gradually simplify. My company related HSA (because I got started late and balance never so high) and stock bonus brokerage account are first to go during early retirement. In our late 60s when E and I bonds hit their maturity dates will start using those for our income, before RMD/SS at 70.
In 70s I expect to have only Vanguard taxable/roth and a 401k, nothing much else to deal with.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Sun Mar 03, 2019 11:44 pm
by beyou
emlowe wrote:
Sun Mar 03, 2019 11:26 am
Yes, usually you need to be in a high bracket before the yield starts to make sense. However, if you want to avoid taxes for ACA or other reasons, then you can consider Vanguard Municipal Money Market Fund (VMSXX). This is the national muni money market fund. It will be federal tax-free.
ACA does count muni income.

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Thu Mar 14, 2019 1:44 am
by jules
Thanks everyone! I summarized the recommendations people in this thread gave, as follows:

Ticker Fund Name (Number of people recommending) Compound Yield or 30 day SEC yield
VMMXX Vanguard Prime Money Market Fund (3) 2.48%
VUSXX Vanguard Treasury Money Market Fund (1) 2.38%
VFIRX Vanguard Short Term Treasury Fund Admiral (1) 2.42%
VFISX Vanguard Short Term Treasury Fund Investor (1) 2.32%
VWIUX Vanguard Intermediate-Term Tax-Exempt Fund;Admiral (1) 2.27%
VBTLX Vanguard Total Bond Market Index Fund;Admiral (1) 3.14%
VMSXX Vanguard Municipal Money Market Fund;Investor (1) 1.62%
VSGDX Vanguard Short-Term Federal Fund;Admiral (1) 2.58%
Stick with (2003-2007-issue) Treasury Direct I Bonds (2) 2.98% average for entire emergency fund, 3.43% average on ~$5K worth of 2003-2007 issues
treasury bills (auto rolled at fidelity) (2) 2.53% (6mo)

* Ruled out Admiral funds as my current emergency fund doesn't (yet) need to be as high as the $50,000 minimum there (will reconsider if it does)
* Thought about doing the auto rolled treasury bills at Fidelity, but the complexity of the buy options there (compared to what I'm used to) and the restricted dates for certain transactions scared me off.
* Decided to go with Vanguard Prime for the simplicity of it, and the decent yield.

Redeemed my first (newer) 2.32% I Bond already - felt good! Looking forward to getting that into Vanguard Prime. The rest will be redeemed after the 5 year redemption-without-penalty mark hits for the newest I Bonds. Then I'll be free of Treasury Direct forever. Thanks again!

Re: Moving Emergency Fund from I Bonds at Treasury Direct to something at Vanguard?

Posted: Thu Mar 14, 2019 6:34 am
by z3r0c00l
Every things free wrote:
Sun Mar 03, 2019 9:12 am
Dealing with Treasury Direct after getting hit by a bus. My thoughts also. I've dealt with TD for years. No more.
As a moat to protect my other investments I went with VWIUX and VBTLX.

Back to the bus. My 80+ year old grandmother was boarding a city bus in Buffalo years ago. The door closed on her coat and dragged her down the road. She survived.

Kim
As a steady user of T direct, I wonder if you can clarify what is complicated about it. They require a password and user name like any other account, and may need something (security questions, temporary pin) when you swap computers. How are they different from Vanguard or an online bank account? I ask because nothing has been worse than my online Chase account, but I have not yet died and left money to heirs so maybe something is missing. Remember that those years of buying I bonds to the limit are not recoverable if you want to get back into them later.