Is anyone intentionally overpaying the IRS to get IBONDS?

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Whitecap
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Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Whitecap »

Assumptions : With the low yield on bonds currently, and the common fear of inflation, Ive read here that IBONDS are generally considered a great fixed income option. The drawback is that one can only put 10K a year into one’s IBond account a year (per person if filing jointly, if I understand this correctly). It is hard to build up an IBond account quickly at 10k year, or 20K per couple.

I read on Bogleheads, that one can take one’s IRS tax fefund and ask to be paid in paper IBonds. Once the paper IBonds get to one’s house, through the mail, those paper bonds can be transferred or converted to their IBond account electronically. (No need to have paper bonds in a safety deposit box, or hidden under One’s mattress). I looked on the IRS website to verify this. If I understand it correctly, the info above is accurate (probably with a few simplification errors on my part, that you will bring forward to me). :happy

My question is this: Is anyone intentionally increasing their federal tax withholdings, in order to get a 10k tax refund from Uncle Sam? That 10K would be split by one’s Wife/Husband and issued to the couple which then is deposited, 5K per person, into each persons account after converting it electronically. Using this plan, one’s individual account would grow from 10K to 15k per year. One builds one’s IBONDS account to the desired desired value 33% faster. Is anyone doing this? Where is the flaw in this? Is it worth the effort? Is this a lot of effort? It seems pretty straightforward at first blush.
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Rob5TCP
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Rob5TCP »

I haven't, but in a number of threads Bogleheads have mentioned they deliberately overpayed taxes to get the extra I Bonds.

A recent one
viewtopic.php?t=336201
Da5id
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Da5id »

Yep I'm doing this again this year. Only downside I know is the interest free loan to the government, so you can pay extra in Q4 to minimize that. If they process your return slowly you do get interest on your refund but also your bond purchase is delayed.
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Whitecap
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Whitecap »

Da5id wrote: Sun Aug 08, 2021 6:28 am Yep I'm doing this again this year. Only downside I know is the interest free loan to the government, so you can pay extra in Q4 to minimize that. If they process your return slowly you do get interest on your refund but also your bond purchase is delayed.
Da5id,

Thanks for the reply. Is the process easy? You do alone take advantage of this, or do you and your significant both do it because of joint filing? Is it a simple process if you both take advantage of this option? Is the paper to electronic conversion an easy process? Do you recommend this strategy?
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Whitecap
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Whitecap »

Rob5TCP wrote: Sun Aug 08, 2021 6:23 am I haven't, but in a number of threads Bogleheads have mentioned they deliberately overpayed taxes to get the extra I Bonds.

A recent one
viewtopic.php?t=336201
Rob5TCP,

I’ll start reading up on this today.

Thanks Rob,
Whitecap :happy
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Da5id »

Whitecap wrote: Sun Aug 08, 2021 6:31 am
Da5id wrote: Sun Aug 08, 2021 6:28 am Yep I'm doing this again this year. Only downside I know is the interest free loan to the government, so you can pay extra in Q4 to minimize that. If they process your return slowly you do get interest on your refund but also your bond purchase is delayed.
Da5id,

Thanks for the reply. Is the process easy? You do alone take advantage of this, or do you and your significant both do it because of joint filing? Is it a simple process if you both take advantage of this option? Is the paper to electronic conversion an easy process? Do you recommend this strategy?
Just alone as my wife passed away a few years ago.

It is simple. They do mail you a bunch of bonds in various denominations adding up to 5K. Converting wasn't bad but some bogleheads like the paper ones as Treasury Direct isn't the most friendly site. I'd rather not have both paper and electronic so I converted the other year I did the refund. I'm doing it this year too and will convert.
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by HomeStretch »

Whitecap wrote: Sun Aug 08, 2021 6:19 am …My question is this: Is anyone intentionally increasing their federal tax withholdings, in order to get a 10k tax refund from Uncle Sam? That 10K would be split by one’s Wife/Husband and issued to the couple which then is deposited, 5K per person
Yes, spouse and I used IRS Direct Pay to file an extension/pay additional tax in order to increase our refund in the form of paper I-Bonds. The $5k maximum is per tax return, not by person so $5k is the maximum for MFJ. It was not too hard to convert the paper bonds to electronic.
Last edited by HomeStretch on Tue Sep 14, 2021 10:38 am, edited 1 time in total.
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by dcabler »

Whitecap wrote: Sun Aug 08, 2021 6:19 am Assumptions : With the low yield on bonds currently, and the common fear of inflation, Ive read here that IBONDS are generally considered a great fixed income option. The drawback is that one can only put 10K a year into one’s IBond account a year (per person if filing jointly, if I understand this correctly). It is hard to build up an IBond account quickly at 10k year, or 20K per couple.

I read on Bogleheads, that one can take one’s IRS tax fefund and ask to be paid in paper IBonds. Once the paper IBonds get to one’s house, through the mail, those paper bonds can be transferred or converted to their IBond account electronically. (No need to have paper bonds in a safety deposit box, or hidden under One’s mattress). I looked on the IRS website to verify this. If I understand it correctly, the info above is accurate (probably with a few simplification errors on my part, that you will bring forward to me). :happy

My question is this: Is anyone intentionally increasing their federal tax withholdings, in order to get a 10k tax refund from Uncle Sam? That 10K would be split by one’s Wife/Husband and issued to the couple which then is deposited, 5K per person, into each persons account after converting it electronically. Using this plan, one’s individual account would grow from 10K to 15k per year. One builds one’s IBONDS account to the desired desired value 33% faster. Is anyone doing this? Where is the flaw in this? Is it worth the effort? Is this a lot of effort? It seems pretty straightforward at first blush.
Yes, we do this every year. No, it's not $10K. It's $5K per tax refund if MFJ and you can decide whether it's in your name or your wife's name. We alternate each year where it goes.

For your refund being used to purchase paper Ibonds, note that not all tax software makes this as easy as it is for other items you enter, but once you figure out how to do it for the particular software you use, note it somewhere for the next year.

As others have noted, conversion from paper to electronic is pretty strightforward. You have to enter the serial numbers of each of the paper bonds into TD and it creates a manifest of them that you print out and send along with the bonds when you mail them back in: Pro-TIP: The paper bonds will consist of a bunch of different denominations, unlike when you purchase electronic bonds directly for the amount of, say $10K. So when you create the manifest, order the bonds from highest denomination to lowest (or vice versa, your choice) because that's the order they're going to appear in TD once converted. I find it makes it a bit easier to keep up with each year's purchase that way.

Cheers.
Last edited by dcabler on Sun Aug 08, 2021 6:58 am, edited 2 times in total.
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nps
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by nps »

For a given tax year, can overpayment ahead of filing taxes be made after the tax deadline but within the extension window if an extension has already been filed?
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by SnowBog »

Just did it this year for first time.

Basically, ensure you overpay for taxes prior to filing.

One easy way is to calculate your taxes, and then send payment + $5000 (or maybe a bit more as a buffer) as part of filing for an extension.

Then simply file your taxes, with the right form requesting up to $5k as I Bonds. Could be the same day as filing the extension (or anytime before the extension end date).
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by nisiprius »

Every year I think about it and every year I decide not to. Here are my reasons, which would not apply to everyone, in order of decreasing importance.

My biggest reason is that in 2019 we missed a small RMD due to carelessness, and like an idiot I decided to ask for a waiver of a penalty of a couple of hundred dollars. It turned out that to do that, I needed to file on paper. My paper return hit the IRS in the middle of a four-month hiatus in processing paper returns and, overall, something like an eight-month delay in getting a refund. I get it that you can request I bonds when e-filing, but the more I thought about it, the more I thought let's... just.... keep... everything electronic this year.

Reason #2 is that I don't believe it is possible to request truly co-owned paper I bonds as a refund. All our paper I-bonds are co-owned by me and my wife. One of the whole points of paper savings bonds for us is our belief that a survivor can redeem them without any estate paperwork or death certificates. I don't want to complicate the picture by mixing in some i bonds that are not co-owned. [Corrected by HueyLD below]

Reason #2 is that you can't control the denominations and Bogleheads report that they send an assortment, even if you are redeeming for a round $5,000. Since our intention is to keep the paper bonds as paper, not to electronify them, a mix of denominations is a nuisance and clutter.
Last edited by nisiprius on Sun Aug 08, 2021 12:00 pm, edited 3 times in total.
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by SnowBog »

nisiprius wrote: Sun Aug 08, 2021 10:20 am Every year I think about it and every year I decide not to. Here are my reasons, which would not apply to everyone, in order of decreasing importance.

My biggest reason is that in 2019 we missed a small RMD due to carelessness, and like an idiot I decided to ask for a waiver of a penalty of a couple of hundred dollars. It turned out that to do that, I needed to file on paper. My paper return hit the IRS in the middle of a four-month hiatus in processing paper returns and, overall, something like an eight-month delay in getting a refund. I get it that you can request I bonds when e-filing, but the more I thought about it, the more I thought let's... just.... keep... everything electronic this year.

Reason #2 is that I don't believe it is possible to request truly co-owned paper I bonds as a refund. All our paper I-bonds are co-owned by me and my wife. One of the whole points of paper savings bonds for us is our belief that a survivor can redeem them without any estate paperwork or death certificates. I don't want to complicate the picture by mixing in some i bonds that are not co-owned.

Reason #3 is that you can't control the denominations and Bogleheads report that they send an assortment, even if you are redeeming for a round $5,000. Since our intention is to keep the paper bonds as paper, not to electronify them, a mix of denominations is a nuisance and clutter.
On #3, I agree... But IIRC it's like 4x $1k, 1x $500, 1x $200, 2x $100, 2x $50. Which I don't think is too bad...
Last edited by SnowBog on Sun Aug 08, 2021 11:01 am, edited 1 time in total.
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by HueyLD »

nisiprius wrote: Sun Aug 08, 2021 10:20 am Every year I think about it and every year I decide not to. Here are my reasons, which would not apply to everyone, in order of decreasing importance.

Reason #2 is that I don't believe it is possible to request truly co-owned paper I bonds as a refund. All our paper I-bonds are co-owned by me and my wife. One of the whole points of paper savings bonds for us is our belief that a survivor can redeem them without any estate paperwork or death certificates. I don't want to complicate the picture by mixing in some i bonds that are not co-owned.
The paper i bonds issued via tax refund can definitely be co-owned by two people. Take a close look at form 8888 https://www.irs.gov/pub/irs-pdf/f8888.pdf
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Strayshot »

I figured I would post here vs start a new thread.

I got my paper bonds in the mail, and as mentioned above they come as a mess of denominations. I got 3x1000, 1x500, 3x200, and the rest (900) as 18! 50’s.

Is there any way to specify something different to the treasury via the irs so there aren’t so many small denominations? As nisiprius says above, managing a bunch of small denominations over a number of years is just silly.
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by DEBTINATOR »

This sounds like a giant headache for me and my heirs. I'd probably lose them. VTSAX for me.
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Walkure »

Strayshot wrote: Tue Sep 14, 2021 7:59 am I figured I would post here vs start a new thread.

I got my paper bonds in the mail, and as mentioned above they come as a mess of denominations. I got 3x1000, 1x500, 3x200, and the rest (900) as 18! 50’s.

Is there any way to specify something different to the treasury via the irs so there aren’t so many small denominations? As nisiprius says above, managing a bunch of small denominations over a number of years is just silly.
No, although that seems odd, I got exactly what they said according to the formula, which should be that you get (6) $50s and then everything else in the fewest number of bonds. Considering the whole point of this is to use up paper bonds that were printed years ago (some of my 2020 refund was from the Paulsen Treasury era), I'd be more concerned that your experience suggests they are getting to the end of the pile and just stuffing the envelope with whatever is left. The I-bond extra $5k refund option may not be long for this world...

As an aside, 18! = 6.40237371 x 10^15, please tell me how I can get that refund :twisted:
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by dh »

Strayshot wrote: Tue Sep 14, 2021 7:59 am I figured I would post here vs start a new thread.

I got my paper bonds in the mail, and as mentioned above they come as a mess of denominations. I got 3x1000, 1x500, 3x200, and the rest (900) as 18! 50’s.

Is there any way to specify something different to the treasury via the irs so there aren’t so many small denominations? As nisiprius says above, managing a bunch of small denominations over a number of years is just silly.
I have never received I Bonds from a tax return. I found this online a long time ago:
"If your purchase amount is over $250, the $50 denomination will be used for the first $250 and the remainder of your order will be filled using the fewest possible number of additional bonds."

So if true, I would have predicted you receiving the following:

5-50s
4-1000s
1-500
1-200
1 additional 50 to hit $5,000

Did I misunderstand? ...it wouldn't be the first time :oops:
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Strayshot »

Ha! I wish it was 18 factorial but no, the exclamation was there because the 18 50’s blew my mind. Each came in it’s own envelope too, my mailbox was stuffed and I got 2 paper cuts opening mail.

dh, I wish there had only been 5 of the 50’s. Putting these into TD is gonna be a pain.

I had to file an extension so only finished 2020 filing the beginning of this month. Has anyone else experienced this or am I just unlucky? :oops:
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by rob »

I did for the first time in 2020 return.... and maybe by 2023 I will get it processed :oops:
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by tibbitts »

Whitecap wrote: Sun Aug 08, 2021 6:19 am Is it worth the effort?
Absolutely worth it the next time the fixed rate hits 2% or more. In the meantime, not so much.
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Grt2bOutdoors »

Strayshot wrote: Tue Sep 14, 2021 9:22 pm Ha! I wish it was 18 factorial but no, the exclamation was there because the 18 50’s blew my mind. Each came in it’s own envelope too, my mailbox was stuffed and I got 2 paper cuts opening mail.

dh, I wish there had only been 5 of the 50’s. Putting these into TD is gonna be a pain.

I had to file an extension so only finished 2020 filing the beginning of this month. Has anyone else experienced this or am I just unlucky? :oops:
Sounds like they are running low on paper stock! I’m guessing opening a revocable trust may be the work-around for purchasing an extra $5k in the future. Holding 18 “$50” denominations might be good in retirement as you can cash one out each time you make a run to Starbucks for coffee!
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by smectym »

nisiprius wrote: Sun Aug 08, 2021 10:20 am Every year I think about it and every year I decide not to. Here are my reasons, which would not apply to everyone, in order of decreasing importance.

My biggest reason is that in 2019 we missed a small RMD due to carelessness, and like an idiot I decided to ask for a waiver of a penalty of a couple of hundred dollars. It turned out that to do that, I needed to file on paper. My paper return hit the IRS in the middle of a four-month hiatus in processing paper returns and, overall, something like an eight-month delay in getting a refund. I get it that you can request I bonds when e-filing, but the more I thought about it, the more I thought let's... just.... keep... everything electronic this year.

Reason #2 is that I don't believe it is possible to request truly co-owned paper I bonds as a refund. All our paper I-bonds are co-owned by me and my wife. One of the whole points of paper savings bonds for us is our belief that a survivor can redeem them without any estate paperwork or death certificates. I don't want to complicate the picture by mixing in some i bonds that are not co-owned. [Corrected by HueyLD below]

Reason #2 is that you can't control the denominations and Bogleheads report that they send an assortment, even if you are redeeming for a round $5,000. Since our intention is to keep the paper bonds as paper, not to electronify them, a mix of denominations is a nuisance and clutter.
Agree that keeping paper bonds isn’t a bad idea. We have electronic too, but also a small brick of paper bonds (I and EE) in a tiny safe. But yes, an arbitrary mix of low-denomination bonds sounds annoying
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by anon_investor »

smectym wrote: Tue Sep 14, 2021 11:51 pm
nisiprius wrote: Sun Aug 08, 2021 10:20 am Every year I think about it and every year I decide not to. Here are my reasons, which would not apply to everyone, in order of decreasing importance.

My biggest reason is that in 2019 we missed a small RMD due to carelessness, and like an idiot I decided to ask for a waiver of a penalty of a couple of hundred dollars. It turned out that to do that, I needed to file on paper. My paper return hit the IRS in the middle of a four-month hiatus in processing paper returns and, overall, something like an eight-month delay in getting a refund. I get it that you can request I bonds when e-filing, but the more I thought about it, the more I thought let's... just.... keep... everything electronic this year.

Reason #2 is that I don't believe it is possible to request truly co-owned paper I bonds as a refund. All our paper I-bonds are co-owned by me and my wife. One of the whole points of paper savings bonds for us is our belief that a survivor can redeem them without any estate paperwork or death certificates. I don't want to complicate the picture by mixing in some i bonds that are not co-owned. [Corrected by HueyLD below]

Reason #2 is that you can't control the denominations and Bogleheads report that they send an assortment, even if you are redeeming for a round $5,000. Since our intention is to keep the paper bonds as paper, not to electronify them, a mix of denominations is a nuisance and clutter.
Agree that keeping paper bonds isn’t a bad idea. We have electronic too, but also a small brick of paper bonds (I and EE) in a tiny safe. But yes, an arbitrary mix of low-denomination bonds sounds annoying
How long ago did they have paper EE Bonds?
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by smectym »

anon_investor wrote: Tue Sep 14, 2021 11:56 pm
smectym wrote: Tue Sep 14, 2021 11:51 pm
nisiprius wrote: Sun Aug 08, 2021 10:20 am Every year I think about it and every year I decide not to. Here are my reasons, which would not apply to everyone, in order of decreasing importance.

My biggest reason is that in 2019 we missed a small RMD due to carelessness, and like an idiot I decided to ask for a waiver of a penalty of a couple of hundred dollars. It turned out that to do that, I needed to file on paper. My paper return hit the IRS in the middle of a four-month hiatus in processing paper returns and, overall, something like an eight-month delay in getting a refund. I get it that you can request I bonds when e-filing, but the more I thought about it, the more I thought let's... just.... keep... everything electronic this year.

Reason #2 is that I don't believe it is possible to request truly co-owned paper I bonds as a refund. All our paper I-bonds are co-owned by me and my wife. One of the whole points of paper savings bonds for us is our belief that a survivor can redeem them without any estate paperwork or death certificates. I don't want to complicate the picture by mixing in some i bonds that are not co-owned. [Corrected by HueyLD below]

Reason #2 is that you can't control the denominations and Bogleheads report that they send an assortment, even if you are redeeming for a round $5,000. Since our intention is to keep the paper bonds as paper, not to electronify them, a mix of denominations is a nuisance and clutter.
Agree that keeping paper bonds isn’t a bad idea. We have electronic too, but also a small brick of paper bonds (I and EE) in a tiny safe. But yes, an arbitrary mix of low-denomination bonds sounds annoying
How long ago did they have paper EE Bonds?
anon, it goes way back, and before EE there were E bonds. I bought paper EE bonds (under duress—the whole platoon had to buy them, OR ELSE we wouldn’t get that half-day off) while in the Army in the early 1970’s
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by smectym »

smectym wrote: Wed Sep 15, 2021 12:15 am
anon_investor wrote: Tue Sep 14, 2021 11:56 pm
smectym wrote: Tue Sep 14, 2021 11:51 pm
nisiprius wrote: Sun Aug 08, 2021 10:20 am Every year I think about it and every year I decide not to. Here are my reasons, which would not apply to everyone, in order of decreasing importance.

My biggest reason is that in 2019 we missed a small RMD due to carelessness, and like an idiot I decided to ask for a waiver of a penalty of a couple of hundred dollars. It turned out that to do that, I needed to file on paper. My paper return hit the IRS in the middle of a four-month hiatus in processing paper returns and, overall, something like an eight-month delay in getting a refund. I get it that you can request I bonds when e-filing, but the more I thought about it, the more I thought let's... just.... keep... everything electronic this year.

Reason #2 is that I don't believe it is possible to request truly co-owned paper I bonds as a refund. All our paper I-bonds are co-owned by me and my wife. One of the whole points of paper savings bonds for us is our belief that a survivor can redeem them without any estate paperwork or death certificates. I don't want to complicate the picture by mixing in some i bonds that are not co-owned. [Corrected by HueyLD below]

Reason #2 is that you can't control the denominations and Bogleheads report that they send an assortment, even if you are redeeming for a round $5,000. Since our intention is to keep the paper bonds as paper, not to electronify them, a mix of denominations is a nuisance and clutter.
Agree that keeping paper bonds isn’t a bad idea. We have electronic too, but also a small brick of paper bonds (I and EE) in a tiny safe. But yes, an arbitrary mix of low-denomination bonds sounds annoying
How long ago did they have paper EE Bonds?
anon, it goes way back, and before EE there were E bonds. I bought paper EE bonds (under duress—the whole platoon had to buy them, OR ELSE we wouldn’t get that half-day off) while in the Army in the early 1970’s
Sorry, meant to say “I bought *E* bonds”
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by anon_investor »

smectym wrote: Wed Sep 15, 2021 12:15 am
anon_investor wrote: Tue Sep 14, 2021 11:56 pm
smectym wrote: Tue Sep 14, 2021 11:51 pm
nisiprius wrote: Sun Aug 08, 2021 10:20 am Every year I think about it and every year I decide not to. Here are my reasons, which would not apply to everyone, in order of decreasing importance.

My biggest reason is that in 2019 we missed a small RMD due to carelessness, and like an idiot I decided to ask for a waiver of a penalty of a couple of hundred dollars. It turned out that to do that, I needed to file on paper. My paper return hit the IRS in the middle of a four-month hiatus in processing paper returns and, overall, something like an eight-month delay in getting a refund. I get it that you can request I bonds when e-filing, but the more I thought about it, the more I thought let's... just.... keep... everything electronic this year.

Reason #2 is that I don't believe it is possible to request truly co-owned paper I bonds as a refund. All our paper I-bonds are co-owned by me and my wife. One of the whole points of paper savings bonds for us is our belief that a survivor can redeem them without any estate paperwork or death certificates. I don't want to complicate the picture by mixing in some i bonds that are not co-owned. [Corrected by HueyLD below]

Reason #2 is that you can't control the denominations and Bogleheads report that they send an assortment, even if you are redeeming for a round $5,000. Since our intention is to keep the paper bonds as paper, not to electronify them, a mix of denominations is a nuisance and clutter.
Agree that keeping paper bonds isn’t a bad idea. We have electronic too, but also a small brick of paper bonds (I and EE) in a tiny safe. But yes, an arbitrary mix of low-denomination bonds sounds annoying
How long ago did they have paper EE Bonds?
anon, it goes way back, and before EE there were E bonds. I bought paper EE bonds (under duress—the whole platoon had to buy them, OR ELSE we wouldn’t get that half-day off) while in the Army in the early 1970’s
Interesting. I assume you have long redeemed those 1970s issued I Bonds. :beer

Also, thank you for your service.
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by ivgrivchuck »

SnowBog wrote: Sun Aug 08, 2021 9:52 am Just did it this year for first time.

Basically, ensure you overpay for taxes prior to filing.

One easy way is to calculate your taxes, and then send payment + $5000 (or maybe a bit more as a buffer) as part of filing for an extension.

Then simply file your taxes, with the right form requesting up to $5k as I Bonds. Could be the same day as filing the extension (or anytime before the extension end date).
This is exactly what I did this year for the first time.
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by JBTX »

Whitecap wrote: Sun Aug 08, 2021 6:19 am Assumptions : With the low yield on bonds currently, and the common fear of inflation, Ive read here that IBONDS are generally considered a great fixed income option. The drawback is that one can only put 10K a year into one’s IBond account a year (per person if filing jointly, if I understand this correctly). It is hard to build up an IBond account quickly at 10k year, or 20K per couple.

I read on Bogleheads, that one can take one’s IRS tax fefund and ask to be paid in paper IBonds. Once the paper IBonds get to one’s house, through the mail, those paper bonds can be transferred or converted to their IBond account electronically. (No need to have paper bonds in a safety deposit box, or hidden under One’s mattress). I looked on the IRS website to verify this. If I understand it correctly, the info above is accurate (probably with a few simplification errors on my part, that you will bring forward to me). :happy

My question is this: Is anyone intentionally increasing their federal tax withholdings, in order to get a 10k tax refund from Uncle Sam? That 10K would be split by one’s Wife/Husband and issued to the couple which then is deposited, 5K per person, into each persons account after converting it electronically. Using this plan, one’s individual account would grow from 10K to 15k per year. One builds one’s IBONDS account to the desired desired value 33% faster. Is anyone doing this? Where is the flaw in this? Is it worth the effort? Is this a lot of effort? It seems pretty straightforward at first blush.
I did for the first time last year. Pretty straightforward.

May as well double down and get a new credit card with a large intro bonus and pay the tax with your credit card.

https://www.doctorofcredit.com/report-c ... le-online/

You could get up to $1000 bonus (chase sapphire) and exceed the spend requirement just with the $5000 tax overpayment.
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contraryquitemary
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by contraryquitemary »

Why do you have to file for an extension? Can I just make an online tax payment at the end of the year of $5,000 plus expected taxes and then just file normally?
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Strayshot »

contraryquitemary wrote: Wed Sep 15, 2021 6:14 pm Why do you have to file for an extension? Can I just make an online tax payment at the end of the year of $5,000 plus expected taxes and then just file normally?
This is a good question, I think paying an estimate as part of filing an extension is easy but is there anything stopping someone from just making one estimated tax payment? Seems to be the same level of effort minus the extension?

In other news, since you can make up to 2 estimated tax payments per quarter electronically, what is to stop someone from using them throughout the year as an easy mechanism to manufactured spend for credit card bonuses as JBTX mentions? Does the IRS care if you give them an interest free loan even if your prior year taxes don’t require estimated payments?

Not meaning to hijack the thread but it seems relevant to the “intentional overpayment” theme……anyone have an audit triggered for this kind of stuff?
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thedayisbrave
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by thedayisbrave »

Oh, wow, did not know this was possible. Is this only for MFJ or can anyone do it?
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by SnowBog »

thedayisbrave wrote: Wed Sep 15, 2021 6:30 pm Oh, wow, did not know this was possible. Is this only for MFJ or can anyone do it?
I believe anyone can do it...
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by rockstar »

I just buy them using my checking account for the max. Why would I intentionally overpay the IRS?
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by SnowBog »

contraryquitemary wrote: Wed Sep 15, 2021 6:14 pm Why do you have to file for an extension? Can I just make an online tax payment at the end of the year of $5,000 plus expected taxes and then just file normally?
TurboTax (and likely others) let you file an extension for free - that's what I used last year. (Doesn't matter if you file your taxes through them or not... Although I ultimately did...)

Maybe it doesn't matter, but the extension seems "simpler" to me - as I'm sending in my "estimated taxes" and requesting an extension (which is automatically granted - provided you paid your taxes). Then when I file the final taxes (in theory the same day - or any time up to the extension deadline), everything matches up.

In theory - I think you could make an estimated tax payment as well - but if I recall those are supposed to be paid by 1/15 - likely before you have the information necessary to figure out taxes for the year. But presumably you could take a guess - and at least get close...

If you made a random payment - and then filed taxes - hopefully those would match up as well - never tried...
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by SnowBog »

rockstar wrote: Wed Sep 15, 2021 7:25 pm I just buy them using my checking account for the max. Why would I intentionally overpay the IRS?
Because you can only get $10k (or $20k if married) directly through Treasury Direct.

Overpaying let's you get an additional $5k (although they are paper bonds - if it matters...).

For those wanting to stock up on I Bonds - that's 25% - 50% more than they could buy otherwise...
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by dratkinson »

Use to do it. Paid extra with form 4868 (extension of time to file), so a very ST government loan. The game/distraction made doing taxes less onerous.

But stopped after deciding I preferred the simplicity of management, immediate dividend, and greater tax benefit of municipal bond fund.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Mel Lindauer »

One advantage of having a number of smaller paper I Bonds is that you can run to the bank when you need money and redeem the number closest to your needs instead of redeeming a $1000 or $5000 bond when you only need a few hundred.
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Mel Lindauer »

SnowBog wrote: Wed Sep 15, 2021 7:18 pm
thedayisbrave wrote: Wed Sep 15, 2021 6:30 pm Oh, wow, did not know this was possible. Is this only for MFJ or can anyone do it?
I believe anyone can do it...
Yes, anyone can do it, but a couple filing MFJ can only get $5k. It's one 5k allotment per return.
Best Regards - Mel | | Semper Fi
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by SnowBog »

Mel Lindauer wrote: Thu Sep 16, 2021 3:55 pm One advantage of having a number of smaller paper I Bonds is that you can run to the bank when you need money and redeem the number closest to your needs instead of redeeming a $1000 or $5000 bond when you only need a few hundred.
I haven't redeemed electronic bonds yet... But my understanding is you can redeem any amount you want after 12 months.

Just checked, and the site says you have to redeem a minimum of $25, and if you don't redeem the entire bond need to leave at least $25 (so you can redeem it in the future). https://www.treasurydirect.gov/indiv/re ... m.htm#time

But in hindsight, I think you were likely taking about the advantages of keeping "small" paper bonds in addition to larger bonds. And your advice is there well noted! :beer
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Re: Is anyone intentionally overpaying the IRS to get IBONDS?

Post by Mel Lindauer »

SnowBog wrote: Thu Sep 16, 2021 6:14 pm
Mel Lindauer wrote: Thu Sep 16, 2021 3:55 pm One advantage of having a number of smaller paper I Bonds is that you can run to the bank when you need money and redeem the number closest to your needs instead of redeeming a $1000 or $5000 bond when you only need a few hundred.
I haven't redeemed electronic bonds yet... But my understanding is you can redeem any amount you want after 12 months.

Just checked, and the site says you have to redeem a minimum of $25, and if you don't redeem the entire bond need to leave at least $25 (so you can redeem it in the future). https://www.treasurydirect.gov/indiv/re ... m.htm#time

But in hindsight, I think you were likely taking about the advantages of keeping "small" paper bonds in addition to larger bonds. And your advice is there well noted! :beer
Yes, that's true for TD bonds, but we're talking about PAPER bonds here that folks get as part (or all) of their federal tax refund.
Best Regards - Mel | | Semper Fi
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