TIPS for Tax Money?

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centennialstate
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TIPS for Tax Money?

Post by centennialstate »

I'm 36 and not a believer in bonds at this point, for several reasons. My personal portfolio is 100% US ETFs. However I do make an exception with one account. I don't treat stimulus money or tax return money like it's mine, because I know the government will want it back some day. Therefore, I keep this money in a taxable Vanguard account in a TIPS ETF. I've done some reading about TIPS as well as listened to several podcasts about the subject, but I figure bogleheads are experts. In my estimation, this is the best way to not lose the value of this money over the next several decades, while also not imposing my personal risk tolerance on the government's money.

This may seem like a weird way to do it, but my question is, will this investment strategy accomplish what I want it to if the time horizon is a decade or more? And if any readers of this post are of a similar mindset about the government's money, is this an equitable way to store value over time without gambling with money that isn't mine?
"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2
pkcrafter
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Re: TIPS for Tax Money?

Post by pkcrafter »

Here is an earlier discussion on TIPS...

viewtopic.php?t=185150


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
humblecoder
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Re: TIPS for Tax Money?

Post by humblecoder »

centennialstate wrote: Mon Oct 26, 2020 11:21 am I'm 36 and not a believer in bonds at this point, for several reasons. My personal portfolio is 100% US ETFs. However I do make an exception with one account. I don't treat stimulus money or tax return money like it's mine, because I know the government will want it back some day. Therefore, I keep this money in a taxable Vanguard account in a TIPS ETF. I've done some reading about TIPS as well as listened to several podcasts about the subject, but I figure bogleheads are experts. In my estimation, this is the best way to not lose the value of this money over the next several decades, while also not imposing my personal risk tolerance on the government's money.

This may seem like a weird way to do it, but my question is, will this investment strategy accomplish what I want it to if the time horizon is a decade or more? And if any readers of this post are of a similar mindset about the government's money, is this an equitable way to store value over time without gambling with money that isn't mine?
Let me see if I understand. You are worried that somebody from the government would knock on your door 20, 30, 40 years from now and say, "Excuse me. Remember that tax refund we gave you because you overpaid on your taxes? Well, we need it back now. With interest." Is that the scenario that you are presenting? I am asking because that scenario does not seem likely, so I wanted to make sure that I am interpreting your words correctly.

Assuming that my reading comprehension is correct, I need to ask why you think the government will want your tax refund back someday. You realize that a tax refund is money that you are getting back because you overpaid your taxes. So it is unequivocally your money, not the government's money.

That said, a very simple solution is to decrease your tax withholding or estimated tax payments so that you aren't due a tax refund. Then there would be nothing for the government to want back.

Another option is to consider Series I bonds instead of TIPS. TIPS are currently selling at a negative real interest rate, whereas I Bonds cannot go below a 0% real return. Plus, you can use your tax refund to purchase up to $5K in paper I Bonds. That means that if you want to hold your tax refund in I Bonds, this saves you are step.

A final option is to just invest it in your 100% US ETF portfolio, since it is your money.
stimulacra
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Re: TIPS for Tax Money?

Post by stimulacra »

I think the situation you are hinting at is very unlikely.

With that said, I would probably do 50% EDV and 50% VTIP with your tax money. Or do international bonds if I thought "full faith and credit" of the U.S> government might go sideways.
aristotelian
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Re: TIPS for Tax Money?

Post by aristotelian »

centennialstate wrote: Mon Oct 26, 2020 11:21 amI don't treat stimulus money or tax return money like it's mine, because I know the government will want it back some day.
A refund represents an overpayment of taxes, not money that belongs to the government in any sense. Just because it was once in their possession does not make it "theirs" any more than when you are entitled to a refund for a cancelled ticket or defective merchandise. If the government starts confiscating wealth arbitrarily - a highly unlikely scenario - they are not going to limit it to tax refunds or stimulus payments.
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centennialstate
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Re: TIPS for Tax Money?

Post by centennialstate »

humblecoder wrote: Mon Oct 26, 2020 11:51 am
centennialstate wrote: Mon Oct 26, 2020 11:21 am I'm 36 and not a believer in bonds at this point, for several reasons. My personal portfolio is 100% US ETFs. However I do make an exception with one account. I don't treat stimulus money or tax return money like it's mine, because I know the government will want it back some day. Therefore, I keep this money in a taxable Vanguard account in a TIPS ETF. I've done some reading about TIPS as well as listened to several podcasts about the subject, but I figure bogleheads are experts. In my estimation, this is the best way to not lose the value of this money over the next several decades, while also not imposing my personal risk tolerance on the government's money.

This may seem like a weird way to do it, but my question is, will this investment strategy accomplish what I want it to if the time horizon is a decade or more? And if any readers of this post are of a similar mindset about the government's money, is this an equitable way to store value over time without gambling with money that isn't mine?
Let me see if I understand. You are worried that somebody from the government would knock on your door 20, 30, 40 years from now and say, "Excuse me. Remember that tax refund we gave you because you overpaid on your taxes? Well, we need it back now. With interest." Is that the scenario that you are presenting? I am asking because that scenario does not seem likely, so I wanted to make sure that I am interpreting your words correctly.

Assuming that my reading comprehension is correct, I need to ask why you think the government will want your tax refund back someday. You realize that a tax refund is money that you are getting back because you overpaid your taxes. So it is unequivocally your money, not the government's money.

That said, a very simple solution is to decrease your tax withholding or estimated tax payments so that you aren't due a tax refund. Then there would be nothing for the government to want back.

Another option is to consider Series I bonds instead of TIPS. TIPS are currently selling at a negative real interest rate, whereas I Bonds cannot go below a 0% real return. Plus, you can use your tax refund to purchase up to $5K in paper I Bonds. That means that if you want to hold your tax refund in I Bonds, this saves you are step.

A final option is to just invest it in your 100% US ETF portfolio, since it is your money.
I mean they'll want it back in the form of taxes.
"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2
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centennialstate
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Re: TIPS for Tax Money?

Post by centennialstate »

aristotelian wrote: Mon Oct 26, 2020 12:43 pm
centennialstate wrote: Mon Oct 26, 2020 11:21 amI don't treat stimulus money or tax return money like it's mine, because I know the government will want it back some day.
A refund represents an overpayment of taxes, not money that belongs to the government in any sense. Just because it was once in their possession does not make it "theirs" any more than when you are entitled to a refund for a cancelled ticket or defective merchandise. If the government starts confiscating wealth arbitrarily - a highly unlikely scenario - they are not going to limit it to tax refunds or stimulus payments.
The case can be made that the arbitrary confiscation of wealth started a long time ago and is likely to continue.
"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." Ecclesiastes 11:2
aristotelian
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Re: TIPS for Tax Money?

Post by aristotelian »

centennialstate wrote: Tue Oct 27, 2020 10:04 am
aristotelian wrote: Mon Oct 26, 2020 12:43 pm
centennialstate wrote: Mon Oct 26, 2020 11:21 amI don't treat stimulus money or tax return money like it's mine, because I know the government will want it back some day.
A refund represents an overpayment of taxes, not money that belongs to the government in any sense. Just because it was once in their possession does not make it "theirs" any more than when you are entitled to a refund for a cancelled ticket or defective merchandise. If the government starts confiscating wealth arbitrarily - a highly unlikely scenario - they are not going to limit it to tax refunds or stimulus payments.
The case can be made that the arbitrary confiscation of wealth started a long time ago and is likely to continue.
No, it really cannot.
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dratkinson
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Re: TIPS for Tax Money?

Post by dratkinson »

I too worried that the covid economic stimulus payment had to be repaid, like the "first time home buyers credit".

So read about it at the time, have slept since then, so my memory is probably faulty.

Recall the covid economic stimulus payment came from a new tax credit that we'll get on our 2020 fed tax return next April. Uncle sugar just gave us early that part of our total 2020 tax refund.

So on our 2020 tax return, our computed total tax refund due (+new tax credit), will be reduced (-covid economic stimulus payment) to reflect that we've already received that portion of our 2020 tax refund as an early economic stimulus payment.

I was actually surprised that such a clever idea came out of D.C.


I'm not expecting to be required to repay any of the stimulus money, so invested some of it (pay yourself first), and used the rest for small projects around the house.
Last edited by dratkinson on Wed Oct 28, 2020 5:44 pm, edited 1 time in total.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
000
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Re: TIPS for Tax Money?

Post by 000 »

I don't understand what you're getting at here at all.

In fact, I would imagine money the IRS deliberately gave back to someone has less risk of future tax issues than any other money.
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