I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
Jimsad
Posts: 502
Joined: Mon Mar 20, 2017 5:54 pm

I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Jimsad »

I read that the yield is 7.1% on I bonds . I have been frustrated with the low yield on my emergency funds in online savings accounts .
Should I buy the I bonds? Of course Will still keep enough in my online account for immediate needs for money I need within a year
Also I have a business and a family partnership LLLP
So can we buy total of 40k worth of I bonds now ?
10k- my name
10k wife name
10k- business name
10k - family LLLP name

Also if I redeem these in future for education purpose and roll them in to a 529, no taxes will be due?
runninginvestor
Posts: 979
Joined: Tue Sep 08, 2020 8:00 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by runninginvestor »

As far as your college Q, keep in mind that the cost of college has been rising about twice the rate of inflation. So if you plan to use the i-bonds this way, yeah, you may not pay taxes, but it's kind of like having a 50% tax rate if your money is worth half of tuition (assuming the trends hold).

I don't know if I'm a minority I'm here and thinking of this, but I only view I bonds for an emergency fund and potentially when retirement is on the horizon and I'm allocating savings towards bonds for preservation of capital.
Last edited by runninginvestor on Fri Nov 05, 2021 7:28 am, edited 1 time in total.
SuperTrooper87
Posts: 195
Joined: Tue Jan 26, 2021 6:42 am

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by SuperTrooper87 »

Jimsad wrote: Fri Nov 05, 2021 7:20 am I read that the yield is 7.1% on I bonds . I have been frustrated with the low yield on my emergency funds in online savings accounts .
Should I buy the I bonds? Of course Will still keep enough in my online account for immediate needs for money I need within a year
Also I have a business and a family partnership LLLP
So can we buy total of 40k worth of I bonds now ?
10k- my name
10k wife name
10k- business name
10k - family LLLP name

Also if I redeem these in future for education purpose and roll them in to a 529, no taxes will be due?
[Snarky comment removed by moderator oldcomputerguy]

As far as an EF goes - it is what many (including myself) do to help keep that purchasing power. Last year I converted 10k of EF to I bonds, and will do so again this coming year on 1/1/22. Meanwhile, I am keeping extra cash in the MM to offset what will be tied up in the I bonds until they reach their 1 year mark. It works for some, not for others. Hopefully one day I will have enough in my taxable account that I'll snicker at the thought of ever having an EF.
aristotelian
Posts: 9959
Joined: Wed Jan 11, 2017 8:05 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by aristotelian »

Those funds will be tied up for a year so you may not want that much. I prefer to keep it simple with just one account. Doesn't seem worth the complexity unless you are looking to make a major long term commitment to I Bonds, but rates and inflation should normalize.
MrJedi
Posts: 1532
Joined: Wed May 06, 2020 11:42 am

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by MrJedi »

At a minimum I think it's worth it to buy a small amount if you don't have a TD account setup, just so you become familiar with the account and also to be prepared if you are interested in any other securities directly from the treasury in the future.
pasadena
Posts: 1710
Joined: Sat Jul 02, 2016 1:23 am
Location: PNW

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by pasadena »

I did, except my limit is $10k. Bought that in July, will buy another $10k in January.

If you can afford to have that much cash tied up for a year, then I don't see why not. You can always sell them after a year if the rates fall too low (in which case you will lose 3 months of interest if sold before 5 years).
Grt2bOutdoors
Posts: 24431
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Grt2bOutdoors »

Jimsad wrote: Fri Nov 05, 2021 7:20 am I read that the yield is 7.1% on I bonds . I have been frustrated with the low yield on my emergency funds in online savings accounts .
Should I buy the I bonds? Of course Will still keep enough in my online account for immediate needs for money I need within a year
Also I have a business and a family partnership LLLP
So can we buy total of 40k worth of I bonds now ?
10k- my name
10k wife name
10k- business name
10k - family LLLP name

Also if I redeem these in future for education purpose and roll them in to a 529, no taxes will be due?
1) You can purchase in separate names so long as each has its own unique taxpayer identification number and/or is a different registration type (individual, trust, business). Go on to Treasury direct for more details.

2) Interest on US savings bonds may be excluded from taxation if the purchaser was 24 years of age or older, held the bonds in their name and not joint with child, and is subject to certain modified adjusted gross income that does not exceed $123,550 if filing married jointly. If you exceed that threshold at time of redemption you will owe taxes on the interest income.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
exodusNH
Posts: 1926
Joined: Wed Jan 06, 2021 8:21 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by exodusNH »

Jimsad wrote: Fri Nov 05, 2021 7:20 am I read that the yield is 7.1% on I bonds . I have been frustrated with the low yield on my emergency funds in online savings accounts .
Should I buy the I bonds? Of course Will still keep enough in my online account for immediate needs for money I need within a year
Also I have a business and a family partnership LLLP
So can we buy total of 40k worth of I bonds now ?
10k- my name
10k wife name
10k- business name
10k - family LLLP name

Also if I redeem these in future for education purpose and roll them in to a 529, no taxes will be due?
It's only 7% for six months. So simple math is $350 per $10k.

The fixed amount is 0. While the floating rate with keep up with "inflation." (Scare quotes because inflation isn't one thing and your personal inflation rate might be very different.)

I bonds give you a way to preserve the real value of your money. Whatever $10k buys now, it will buy the same amount of stuff X years from now.

I'm buying them for retirement expenses like property taxes and insurance.
User avatar
goodenyou
Posts: 2935
Joined: Sun Jan 31, 2010 11:57 pm
Location: Skating to Where the Puck is Going to Be..or on the golf course

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by goodenyou »

exodusNH wrote: Fri Nov 05, 2021 7:59 am
Jimsad wrote: Fri Nov 05, 2021 7:20 am I read that the yield is 7.1% on I bonds . I have been frustrated with the low yield on my emergency funds in online savings accounts .
Should I buy the I bonds? Of course Will still keep enough in my online account for immediate needs for money I need within a year
Also I have a business and a family partnership LLLP
So can we buy total of 40k worth of I bonds now ?
10k- my name
10k wife name
10k- business name
10k - family LLLP name

Also if I redeem these in future for education purpose and roll them in to a 529, no taxes will be due?
It's only 7% for six months. So simple math is $350 per $10k.

The fixed amount is 0. While the floating rate with keep up with "inflation." (Scare quotes because inflation isn't one thing and your personal inflation rate might be very different.)

I bonds give you a way to preserve the real value of your money. Whatever $10k buys now, it will buy the same amount of stuff X years from now.

I'm buying them for retirement expenses like property taxes and insurance.
If you purchase I bonds every year, and you have a spouse, in 10 years you will have purchased $200,000 of I bonds. Interest rates can fluctuate, but if there is a spike in interest rates, you will be very happy that your “risk less” asset is paying this kind of interest. I have been buying I bonds since the digital limit was $30,000 per SS# per year.
"Ignorance more frequently begets confidence than does knowledge" | “At 50, everyone has the face he deserves”
z3r0c00l
Posts: 2743
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by z3r0c00l »

Yes I think it is a no-brainer for almost any normal investor who keeps a certain amount of cash/bonds on hand because this is far better than you will get from cash or bonds any time soon. Sadly it is a bit late in the game to get interested in I bonds now. The best time to buy them was for the last 10 years, preparing for just such an unexpectedly high inflation event. But don't let being late make you be even later next time.
75% Global Stocks / 25% I-Bonds
User avatar
Watty
Posts: 24087
Joined: Wed Oct 10, 2007 3:55 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Watty »

I Bonds- 7.12%- no brainer to buy?
Before you get too excited but sure to think through the details.

The current high 3.56% six month rate is a temporary quirk in the way the calculations work to offset the unusually low six rates in May and November of 2020 which which were 0.53% and 0.84%.

The fixed rate is still zero and you will only get 3.56% in six months so for a $10k purchase that is $356. You will also owe federal taxes on that when you eventually sell the iBonds if you don't use it for the limited educational exemptions. After taxes that is likely worth something like $300.

I have not looked at the recently but you might be able to get about that much by moving the $10K around to get bank or brokerage account transfer bonuses.

https://www.bankrate.com/banking/best-b ... t-bonuses/

You will also be committed to leaving the money in iBonds for another six months at some unknown inflation rate so you will not get 7.12% over the entire next year and it will likely be less so that a year from now you will likely end up getting a lower one year interest rate.
exodusNH wrote: Fri Nov 05, 2021 7:59 am I bonds give you a way to preserve the real value of your money. Whatever $10k buys now, it will buy the same amount of stuff X years from now.
That is not correct since with a few exceptions, like for education, you will pay federal taxes on the inflation adjustment when you eventually sell them. With the current 0% fixed rate you are pretty much guaranteed to lose purchasing power after taxes if you hold iBonds with a 0% fixed rate for a long time.
exodusNH
Posts: 1926
Joined: Wed Jan 06, 2021 8:21 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by exodusNH »

goodenyou wrote: Fri Nov 05, 2021 8:26 am
exodusNH wrote: Fri Nov 05, 2021 7:59 am
Jimsad wrote: Fri Nov 05, 2021 7:20 am I read that the yield is 7.1% on I bonds . I have been frustrated with the low yield on my emergency funds in online savings accounts .
Should I buy the I bonds? Of course Will still keep enough in my online account for immediate needs for money I need within a year
Also I have a business and a family partnership LLLP
So can we buy total of 40k worth of I bonds now ?
10k- my name
10k wife name
10k- business name
10k - family LLLP name

Also if I redeem these in future for education purpose and roll them in to a 529, no taxes will be due?
It's only 7% for six months. So simple math is $350 per $10k.

The fixed amount is 0. While the floating rate with keep up with "inflation." (Scare quotes because inflation isn't one thing and your personal inflation rate might be very different.)

I bonds give you a way to preserve the real value of your money. Whatever $10k buys now, it will buy the same amount of stuff X years from now.

I'm buying them for retirement expenses like property taxes and insurance.
If you purchase I bonds every year, and you have a spouse, in 10 years you will have purchased $200,000 of I bonds. Interest rates can fluctuate, but if there is a spike in interest rates, you will be very happy that your “risk less” asset is paying this kind of interest. I have been buying I bonds since the digital limit was $30,000 per SS# per year.
No doubt. People tend to jump all over 7%, but the long-term rate is going to be closer to 2% since the fixed rate is 0.

I don't have enough free cash to buy more than $10k (obv via a trust since I'm not married.) I would, though, since I don't have a good inflation-protected bond choice in my 401k. The tax treatment of TIPS is garbage. I don't want to burn Roth space on them.
exodusNH
Posts: 1926
Joined: Wed Jan 06, 2021 8:21 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by exodusNH »

Watty wrote: Fri Nov 05, 2021 8:42 am
I Bonds- 7.12%- no brainer to buy?
Before you get too excited but sure to think through the details.

The current high 3.56% six month rate is a temporary quirk in the way the calculations work to offset the unusually low six rates in May and November of 2020 which which were 0.53% and 0.84%.

The fixed rate is still zero and you will only get 3.56% in six months so for a $10k purchase that is $356. You will also owe federal taxes on that when you eventually sell the iBonds if you don't use it for the limited educational exemptions. After taxes that is likely worth something like $300.

I have not looked at the recently but you might be able to get about that much by moving the $10K around to get bank or brokerage account transfer bonuses.

https://www.bankrate.com/banking/best-b ... t-bonuses/

You will also be committed to leaving the money in iBonds for another six months at some unknown inflation rate so you will not get 7.12% over the entire next year and it will likely be less so that a year from now you will likely end up getting a lower one year interest rate.
exodusNH wrote: Fri Nov 05, 2021 7:59 am I bonds give you a way to preserve the real value of your money. Whatever $10k buys now, it will buy the same amount of stuff X years from now.
That is not correct since with a few exceptions, like for education, you will pay federal taxes on the inflation adjustment when you eventually sell them. With the current 0% fixed rate you are pretty much guaranteed to lose purchasing power after taxes if you hold iBonds with a 0% fixed rate for a long time.
I don't dispute this, but that's true for any other bond with equivalent risk and basically any FDIC-or-equivalent-protecred account right now. For a $10k/year floor for unavoidable expenses, the amounts involved are small.
dukeblue219
Posts: 2551
Joined: Fri Jan 29, 2016 12:40 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by dukeblue219 »

It's a 0% real rate but it's (right now) 7% higher than most savings accounts.

I'd rather have $10k Ibonds today than $100k in a HYSA, if that helps see the small annual limit in a different context.
User avatar
Wiggums
Posts: 4679
Joined: Thu Jan 31, 2019 8:02 am

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Wiggums »

More people would buy I bonds if the limit was much higher than 10k.
Investors need to be better informed about the costs they pay. “High fund fees can be hazardous to your wealth in the same way that high calories can be hazardous for your health.”
Stillwater1971
Posts: 103
Joined: Mon Dec 21, 2020 3:55 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Stillwater1971 »

I bought 10k worth in September and was planning to buy another 10k in January. This will eventually be used to help pay for my son's College Education since there is a Tax exemption for College Expenditures.

Now, if I wanted to purchase another 10k and put it in my son's name (he's currently 16 yrs old), would THAT 10k be tax exempt if used for college as well? Or is the tax exemption only for parents?
Blue456
Posts: 1639
Joined: Tue Jun 04, 2019 5:46 am

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Blue456 »

Stillwater1971 wrote: Fri Nov 05, 2021 10:12 am I bought 10k worth in September and was planning to buy another 10k in January. This will eventually be used to help pay for my son's College Education since there is a Tax exemption for College Expenditures.

Only tax exempt if you are under certain income.
Julieta7
Posts: 20
Joined: Fri Dec 21, 2018 12:46 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Julieta7 »

Wiggums wrote: Fri Nov 05, 2021 9:24 am More people would buy I bonds if the limit was much higher than 10k.
Been there, done that with the I Bonds

For me the US Total Bond Index is much easier to manage and similar in returns over time.
The best tools available to us are shovels not scalpels | Keep it simple!
Fran K
Posts: 119
Joined: Sat Dec 26, 2020 7:50 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Fran K »

dukeblue219 wrote: Fri Nov 05, 2021 9:08 am It's a 0% real rate but it's (right now) 7% higher than most savings accounts.

I'd rather have $10k Ibonds today than $100k in a HYSA, if that helps see the small annual limit in a different context.
Exactly
You make more money selling advice than following it. -Steve Forbes
User avatar
Mel Lindauer
Moderator
Posts: 32781
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Mel Lindauer »

Stillwater1971 wrote: Fri Nov 05, 2021 10:12 am Now, if I wanted to purchase another 10k and put it in my son's name (he's currently 16 yrs old), would THAT 10k be tax exempt if used for college as well? Or is the tax exemption only for parents?
No, it would not qualify for the tax-exempt use for qualifying educational expenses. He would need to be at least 24 years of age at the time of purchase. Otherwise, the child must be a dependent of the person redeeming the bonds (grandparents don't qualify unless the child is their dependent for tax purposes).
Best Regards - Mel | | Semper Fi
Topic Author
Jimsad
Posts: 502
Joined: Mon Mar 20, 2017 5:54 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Jimsad »

Thank you all for the responses
I would appreciate if anyone can answer whether I can buy 40k worth of I bonds every year

10k- me
10k- spouse
10k- my family LLLP
10k- my business
finagle
Posts: 90
Joined: Sun Oct 30, 2016 9:33 am

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by finagle »

Are I-bonds same/similar to Inflation-protected securities bonds (TIPS, whatever this acronym means)? Thanks OP for this topic.
exodusNH
Posts: 1926
Joined: Wed Jan 06, 2021 8:21 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by exodusNH »

finagle wrote: Fri Nov 05, 2021 3:51 pm Are I-bonds same/similar to bonds (TIPS, whatever this acronym means)? Thanks OP for this topic.
TIPS = treasury inflation-protected securities

Similar, except that there is no secondary market. You must hold them for 1 year. There's a 3 month interest penalty if you cash them out before 5 years. In the event of deflation, they don't claw back any interest. Taxes can be deferred until sale.
UpperNwGuy
Posts: 7081
Joined: Sun Oct 08, 2017 7:16 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by UpperNwGuy »

dukeblue219 wrote: Fri Nov 05, 2021 9:08 am I'd rather have $10k Ibonds today than $100k in a HYSA, if that helps see the small annual limit in a different context.
Why? The answer isn't obvious to me.
dukeblue219
Posts: 2551
Joined: Fri Jan 29, 2016 12:40 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by dukeblue219 »

UpperNwGuy wrote: Fri Nov 05, 2021 4:13 pm
dukeblue219 wrote: Fri Nov 05, 2021 9:08 am I'd rather have $10k Ibonds today than $100k in a HYSA, if that helps see the small annual limit in a different context.
Why? The answer isn't obvious to me.
One pays $360 in federally taxable income in six months. The other pays $200 in state and federally taxable income per six months.

Sorry, to clarify I don't mean I'd rather have $10k total. I mean that despite the limit, it still pays more interest than a much larger sum elsewhere.
UpperNwGuy
Posts: 7081
Joined: Sun Oct 08, 2017 7:16 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by UpperNwGuy »

dukeblue219 wrote: Fri Nov 05, 2021 5:04 pm
UpperNwGuy wrote: Fri Nov 05, 2021 4:13 pm
dukeblue219 wrote: Fri Nov 05, 2021 9:08 am I'd rather have $10k Ibonds today than $100k in a HYSA, if that helps see the small annual limit in a different context.
Why? The answer isn't obvious to me.
One pays $360 in federally taxable income in six months. The other pays $200 in state and federally taxable income per six months.

Sorry, to clarify I don't mean I'd rather have $10k total. I mean that despite the limit, it still pays more interest than a much larger sum elsewhere.
But if you're investing the money for several years instead of for just six months?
dukeblue219
Posts: 2551
Joined: Fri Jan 29, 2016 12:40 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by dukeblue219 »

UpperNwGuy wrote: Fri Nov 05, 2021 5:10 pm
dukeblue219 wrote: Fri Nov 05, 2021 5:04 pm
UpperNwGuy wrote: Fri Nov 05, 2021 4:13 pm
dukeblue219 wrote: Fri Nov 05, 2021 9:08 am I'd rather have $10k Ibonds today than $100k in a HYSA, if that helps see the small annual limit in a different context.
Why? The answer isn't obvious to me.
One pays $360 in federally taxable income in six months. The other pays $200 in state and federally taxable income per six months.

Sorry, to clarify I don't mean I'd rather have $10k total. I mean that despite the limit, it still pays more interest than a much larger sum elsewhere.
But if you're investing the money for several years instead of for just six months?
I'll deal with that in six months. Or, for new i-bonds, in a year. The rate is going to plummet most likely but I think it's extraordinarily unlikely it will fall below the pathetic HYSA rates of the last few years. Paying the 3 Mos interest penalty on Ibonds once the rate falls doesn't change the math much here.

Its not like an ibond or HYSA is a long-term commitment.
UpperNwGuy
Posts: 7081
Joined: Sun Oct 08, 2017 7:16 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by UpperNwGuy »

dukeblue219 wrote: Fri Nov 05, 2021 5:35 pm
UpperNwGuy wrote: Fri Nov 05, 2021 5:10 pm
dukeblue219 wrote: Fri Nov 05, 2021 5:04 pm
UpperNwGuy wrote: Fri Nov 05, 2021 4:13 pm
dukeblue219 wrote: Fri Nov 05, 2021 9:08 am I'd rather have $10k Ibonds today than $100k in a HYSA, if that helps see the small annual limit in a different context.
Why? The answer isn't obvious to me.
One pays $360 in federally taxable income in six months. The other pays $200 in state and federally taxable income per six months.

Sorry, to clarify I don't mean I'd rather have $10k total. I mean that despite the limit, it still pays more interest than a much larger sum elsewhere.
But if you're investing the money for several years instead of for just six months?
I'll deal with that in six months. Or, for new i-bonds, in a year.

Its not like an ibond or HYSA is a long-term commitment.
That's where you and I differ. I don't move my money around every six months based on changing yields. I'm in it for the long haul.
rockstar
Posts: 2624
Joined: Mon Feb 03, 2020 6:51 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by rockstar »

I'm gradually adding I Bonds as a replacement for my emergency fund, which is now in checking. I bought $10k of I Bonds this summer. Since I cannot access them for 12 months since I bought them, I've had to build up another $10k of additional monies in my emergency fund, which I will use to buy more I Bonds next year. It's going to take me several years to transfer my emergency fund to I Bonds. Now, I am thinking of making an estimated tax payment next month, so that I can get the max of $5k in I Bonds when I file my return next year.

The most challenging bit is that your money is locked up for 12 months. The second bit is that you lose 3 months of interest if you redeem in less than 5 years. For these reasons, I wouldn't try to move all of your emergency fund over to them at once.

Finally, it's not 7.12%. It's half that. It will reprice in May, so you most likely will earn something closer to 5% than 7% for the year less 3 months of interest and Federal Taxes, assuming you redeem immediately after one year.

Think of this as a 5 year CD with no penalty and a 1 year CD with penalty that reprices every six months.
dukeblue219
Posts: 2551
Joined: Fri Jan 29, 2016 12:40 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by dukeblue219 »

UpperNwGuy wrote: Fri Nov 05, 2021 5:47 pm That's where you and I differ. I don't move my money around every six months based on changing yields. I'm in it for the long haul.
No shame in that.

I wouldn't chase hot stocks or yesterday's winning bond play every six months, but when we're talking about zero-risk, guaranteed-principle investments I'll take whatever is paying most right now.
brian91480
Posts: 384
Joined: Fri Jan 29, 2021 7:44 pm
Location: Minnesota

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by brian91480 »

SuperTrooper87 wrote: Fri Nov 05, 2021 7:27 am
Jimsad wrote: Fri Nov 05, 2021 7:20 am I read that the yield is 7.1% on I bonds . I have been frustrated with the low yield on my emergency funds in online savings accounts .
Should I buy the I bonds? Of course Will still keep enough in my online account for immediate needs for money I need within a year
Also I have a business and a family partnership LLLP
So can we buy total of 40k worth of I bonds now ?
10k- my name
10k wife name
10k- business name
10k - family LLLP name

Also if I redeem these in future for education purpose and roll them in to a 529, no taxes will be due?
[Snarky comment removed by moderator oldcomputerguy]

As far as an EF goes - it is what many (including myself) do to help keep that purchasing power. Last year I converted 10k of EF to I bonds, and will do so again this coming year on 1/1/22. Meanwhile, I am keeping extra cash in the MM to offset what will be tied up in the I bonds until they reach their 1 year mark. It works for some, not for others. Hopefully one day I will have enough in my taxable account that I'll snicker at the thought of ever having an EF.
I have a decent size brokerage account. Just me, but it would kill me to take money out for any reason. That is my future early retirement money!

But pulling money out of an EF i-bond fund... that doesn't have the same psychological torture effects on my mind.

Something for you to think about.

-- Brian
Topic Author
Jimsad
Posts: 502
Joined: Mon Mar 20, 2017 5:54 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Jimsad »

What is the income level at which you cannot use I bonds tax free to pay for education?
User avatar
Nate79
Posts: 7878
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Nate79 »

Jimsad wrote: Sat Nov 06, 2021 5:50 pm What is the income level at which you cannot use I bonds tax free to pay for education?
https://www.treasurydirect.gov/indiv/pl ... cation.htm
tomsense76
Posts: 1313
Joined: Wed Oct 14, 2020 1:52 am

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by tomsense76 »

Plenty of people use I Bonds as their emergency fund. It's a common use case.

However there is a 1yr lockup. So you may want to figure out how to leg in slowly. Or at least have some kind of plan to cover emergencies in the interim while building up your stash.

More generally if your portfolio is big enough (particularly with some in taxable) you may no longer need an emergency fund. This blogpost shows the reasoning behind this approach generally. Also this page in the wiki shows how other parts of your portfolio can be used to stash cash needs. One may still consider adding I Bonds in this case as well (though one's perspective shifts a bit on how they are used). Personally I would sell stock from taxable and rebalance in my 401k before touching my I Bonds.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
User avatar
Watty
Posts: 24087
Joined: Wed Oct 10, 2007 3:55 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Watty »

Nate79 wrote: Sat Nov 06, 2021 6:13 pm
Jimsad wrote: Sat Nov 06, 2021 5:50 pm What is the income level at which you cannot use I bonds tax free to pay for education?
https://www.treasurydirect.gov/indiv/pl ... cation.htm
One complication to keep in mind is that you will also want to have $4,000 in qualified expenses that are not paid with iBonds or a 529 plan so that you can still get the American Opportunity Tax Credit.

There was an old thread on this.

viewtopic.php?t=301744
sandan
Posts: 298
Joined: Wed Apr 03, 2013 12:48 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by sandan »

tomsense76 wrote: Sat Nov 06, 2021 6:46 pm Plenty of people use I Bonds as their emergency fund. It's a common use case.

However there is a 1yr lockup. So you may want to figure out how to leg in slowly. Or at least have some kind of plan to cover emergencies in the interim while building up your stash.

More generally if your portfolio is big enough (particularly with some in taxable) you may no longer need an emergency fund. This blogpost shows the reasoning behind this approach generally. Also this page in the wiki shows how other parts of your portfolio can be used to stash cash needs. One may still consider adding I Bonds in this case as well (though one's perspective shifts a bit on how they are used). Personally I would sell stock from taxable and rebalance in my 401k before touching my I Bonds.
I had a related situation. When I bought my first home I only had taxable stock and ibonds (with very little in a 401k). I had to sell off my ibonds just to keep my portfolio allocation. I'm still salty about losing those moderate yielding bonds. Using them for "emergencies" can turn out to be expensive over 25 years.
tomsense76
Posts: 1313
Joined: Wed Oct 14, 2020 1:52 am

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by tomsense76 »

sandan wrote: Sat Nov 06, 2021 7:18 pm
tomsense76 wrote: Sat Nov 06, 2021 6:46 pm Plenty of people use I Bonds as their emergency fund. It's a common use case.

However there is a 1yr lockup. So you may want to figure out how to leg in slowly. Or at least have some kind of plan to cover emergencies in the interim while building up your stash.

More generally if your portfolio is big enough (particularly with some in taxable) you may no longer need an emergency fund. This blogpost shows the reasoning behind this approach generally. Also this page in the wiki shows how other parts of your portfolio can be used to stash cash needs. One may still consider adding I Bonds in this case as well (though one's perspective shifts a bit on how they are used). Personally I would sell stock from taxable and rebalance in my 401k before touching my I Bonds.
I had a related situation. When I bought my first home I only had taxable stock and ibonds (with very little in a 401k). I had to sell off my ibonds just to keep my portfolio allocation. I'm still salty about losing those moderate yielding bonds. Using them for "emergencies" can turn out to be expensive over 25 years.
Ouch! I'm sorry to hear that. Yeah it's unfortunate the purchase limits make it hard to effectively "buy back in" as it were.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
User avatar
Mel Lindauer
Moderator
Posts: 32781
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Mel Lindauer »

Nate79 wrote: Sat Nov 06, 2021 6:13 pm
Jimsad wrote: Sat Nov 06, 2021 5:50 pm What is the income level at which you cannot use I bonds tax free to pay for education?
https://www.treasurydirect.gov/indiv/pl ... cation.htm
One thing you can do if you find yourself approaching the income limit for the tax-free education benefit is to redeem the bonds while you still qualify and place them in a 529 Plan. A 529 Plan is considered to be a qualifying educational expense, so even though you might not use the 529 Plan funds until much later, you will still be eligible for the tax-free treatment for the 529 Plan contribution in the year you make it.

A word of caution: You must put the ENTIRE proceeds of the redeemed bond(s) in order to qualify for the tax-free benefit.
Best Regards - Mel | | Semper Fi
Topic Author
Jimsad
Posts: 502
Joined: Mon Mar 20, 2017 5:54 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Jimsad »

Mel Lindauer wrote: Sat Nov 06, 2021 7:31 pm
Nate79 wrote: Sat Nov 06, 2021 6:13 pm
Jimsad wrote: Sat Nov 06, 2021 5:50 pm What is the income level at which you cannot use I bonds tax free to pay for education?
https://www.treasurydirect.gov/indiv/pl ... cation.htm
One thing you can do if you find yourself approaching the income limit for the tax-free education benefit is to redeem the bonds while you still qualify and place them in a 529 Plan. A 529 Plan is considered to be a qualifying educational expense, so even though you might not use the 529 Plan funds until much later, you will still be eligible for the tax-free treatment for the 529 Plan contribution in the year you make it.

A word of caution: You must put the ENTIRE proceeds of the redeemed bond(s) in order to qualify for the tax-free benefit.
I looked it up . If the income if >153,500 for a couple ,
I bonds cannot be used tax free for education
This is a bummer . We are above that income level .
wolf359
Posts: 2579
Joined: Sun Mar 15, 2015 8:47 am

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by wolf359 »

Jimsad wrote: Fri Nov 05, 2021 2:18 pm Thank you all for the responses
I would appreciate if anyone can answer whether I can buy 40k worth of I bonds every year

10k- me
10k- spouse
10k- my family LLLP
10k- my business
I'll tackle this one.

No, I-Bonds can only be purchased by individuals, not LLP or business.
Source: https://www.treasurydirect.gov/indiv/re ... uy.htm#who

However, the limit for an individual is 10k in electronic accounts (through Treasury Direct) and $5k in paper accounts (can only be purchased with an IRS tax refund.)
Source: https://www.treasurydirect.gov/indiv/re ... s_0406.htm

So technically you may be able to get up to $30k in a year:
10k - me
10k - spouse
5k - me (through tax return, but must file MFS)
5k - spouse (through tax return, but must file MFS)

If you file MFJ, you're probably limited to $5k for the paper I-Bond, so a total of $25k of I Bonds in a year.

Caveat: I don't know that the MFS trick works for certain, because I can't find a reference and I've not done this. However, you can read the IRS directions linked above and either interpret the language yourself, or contact a tax attorney. It may not be worth filing MFS if this is the only reason to do so.
User avatar
Mel Lindauer
Moderator
Posts: 32781
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by Mel Lindauer »

wolf359 wrote: Sun Nov 07, 2021 4:15 pm
Jimsad wrote: Fri Nov 05, 2021 2:18 pm Thank you all for the responses
I would appreciate if anyone can answer whether I can buy 40k worth of I bonds every year

10k- me
10k- spouse
10k- my family LLLP
10k- my business
I'll tackle this one.

No, I-Bonds can only be purchased by individuals, not LLP or business.
Source: https://www.treasurydirect.gov/indiv/re ... uy.htm#who

However, the limit for an individual is 10k in electronic accounts (through Treasury Direct) and $5k in paper accounts (can only be purchased with an IRS tax refund.)
Source: https://www.treasurydirect.gov/indiv/re ... s_0406.htm

So technically you may be able to get up to $30k in a year:
10k - me
10k - spouse
5k - me (through tax return, but must file MFS)
5k - spouse (through tax return, but must file MFS)

If you file MFJ, you're probably limited to $5k for the paper I-Bond, so a total of $25k of I Bonds in a year.

Caveat: I don't know that the MFS trick works for certain, because I can't find a reference and I've not done this. However, you can read the IRS directions linked above and either interpret the language yourself, or contact a tax attorney. It may not be worth filing MFS if this is the only reason to do so.
It's 5k per return.
Best Regards - Mel | | Semper Fi
ivgrivchuck
Posts: 1105
Joined: Sun Sep 27, 2020 6:20 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by ivgrivchuck »

wolf359 wrote: Sun Nov 07, 2021 4:15 pm So technically you may be able to get up to $30k in a year:
10k - me
10k - spouse
5k - me (through tax return, but must file MFS)
5k - spouse (through tax return, but must file MFS)
Technically each spouse can also open a living trust and contribute 10k/trust (we did this), but it's probably only worth the trouble if you intend to keep buying i-bonds in the long term. Anyone can type a trust document, get it notarized, and then you have a trust.
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
JohnDoh
Posts: 199
Joined: Sat Nov 30, 2013 10:28 am

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by JohnDoh »

ivgrivchuck wrote: Sun Nov 07, 2021 7:34 pm
wolf359 wrote: Sun Nov 07, 2021 4:15 pm So technically you may be able to get up to $30k in a year:
10k - me
10k - spouse
5k - me (through tax return, but must file MFS)
5k - spouse (through tax return, but must file MFS)
Technically each spouse can also open a living trust and contribute 10k/trust (we did this), but it's probably only worth the trouble if you intend to keep buying i-bonds in the long term. Anyone can type a trust document, get it notarized, and then you have a trust.
Super-technically, I believe the limit is $10K per SSN. Thus if the trust has the same SSN as the individual, then the limit is $10K not $20K. Practically, I think TD has no way compare annual purchases in individual account and trust account, so $10K individual + $10K trust purchases will not be flagged (as they would if you made 2 x $10K purchases in a single account).
somebody_1990
Posts: 15
Joined: Wed May 26, 2021 9:51 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by somebody_1990 »

JohnDoh wrote: Sun Nov 07, 2021 8:10 pm
ivgrivchuck wrote: Sun Nov 07, 2021 7:34 pm
wolf359 wrote: Sun Nov 07, 2021 4:15 pm So technically you may be able to get up to $30k in a year:
10k - me
10k - spouse
5k - me (through tax return, but must file MFS)
5k - spouse (through tax return, but must file MFS)
Technically each spouse can also open a living trust and contribute 10k/trust (we did this), but it's probably only worth the trouble if you intend to keep buying i-bonds in the long term. Anyone can type a trust document, get it notarized, and then you have a trust.
Super-technically, I believe the limit is $10K per SSN. Thus if the trust has the same SSN as the individual, then the limit is $10K not $20K. Practically, I think TD has no way compare annual purchases in individual account and trust account, so $10K individual + $10K trust purchases will not be flagged (as they would if you made 2 x $10K purchases in a single account).
I am confused :( , the other threads did mention that is legit contributing 10k with the same SSN to same person and 10k to his own Revocable Trust same year ...
ivgrivchuck
Posts: 1105
Joined: Sun Sep 27, 2020 6:20 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by ivgrivchuck »

JohnDoh wrote: Sun Nov 07, 2021 8:10 pm Super-technically, I believe the limit is $10K per SSN. Thus if the trust has the same SSN as the individual, then the limit is $10K not $20K. Practically, I think TD has no way compare annual purchases in individual account and trust account, so $10K individual + $10K trust purchases will not be flagged (as they would if you made 2 x $10K purchases in a single account).
There are some really long threads in this forum discussing this. There are arguments on both sides, so I honestly don't know.
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
ivgrivchuck
Posts: 1105
Joined: Sun Sep 27, 2020 6:20 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by ivgrivchuck »

somebody_1990 wrote: Sun Nov 07, 2021 9:58 pm I am confused :( , the other threads did mention that is legit contributing 10k with the same SSN to same person and 10k to his own Revocable Trust same year ...
I believe it is legit until proven otherwise.
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
somebody_1990
Posts: 15
Joined: Wed May 26, 2021 9:51 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by somebody_1990 »

ivgrivchuck wrote: Sun Nov 07, 2021 10:03 pm
somebody_1990 wrote: Sun Nov 07, 2021 9:58 pm I am confused :( , the other threads did mention that is legit contributing 10k with the same SSN to same person and 10k to his own Revocable Trust same year ...
I believe it is legit until proven otherwise.
Interesting if it is not allowed, than when will the problem arise? At the time of redemption, a random IRS audit?
ivgrivchuck
Posts: 1105
Joined: Sun Sep 27, 2020 6:20 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by ivgrivchuck »

somebody_1990 wrote: Sun Nov 07, 2021 10:09 pm Interesting if it is not allowed, than when will the problem arise? At the time of redemption, a random IRS audit?
IANAL, but:

1) If Treasury Direct detects a purchase that is against the rules, they'll usually only issue a warning. They may also cancel the purchase and return the money. In extreme case, I would expect that if you keep breaking the rules despite repeated warnings, they might close your account.
2) It's highly unlikely that at the time of redemption time the U.S. Treasury would start checking any purchase rules. What do they have to gain? They have no legal ground for refusing to pay the interest.
3) IRS is mainly interested that you pay your tax on the interest that you get. I highly doubt that IRS is by any means concerned about the internal practices of the U.S. treasury. They are interested that you pay the tax that you owe. I don't think that you are in violation of any tax code in any case.
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
wolf359
Posts: 2579
Joined: Sun Mar 15, 2015 8:47 am

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by wolf359 »

somebody_1990 wrote: Sun Nov 07, 2021 9:58 pm
JohnDoh wrote: Sun Nov 07, 2021 8:10 pm
ivgrivchuck wrote: Sun Nov 07, 2021 7:34 pm
wolf359 wrote: Sun Nov 07, 2021 4:15 pm So technically you may be able to get up to $30k in a year:
10k - me
10k - spouse
5k - me (through tax return, but must file MFS)
5k - spouse (through tax return, but must file MFS)
Technically each spouse can also open a living trust and contribute 10k/trust (we did this), but it's probably only worth the trouble if you intend to keep buying i-bonds in the long term. Anyone can type a trust document, get it notarized, and then you have a trust.
Super-technically, I believe the limit is $10K per SSN. Thus if the trust has the same SSN as the individual, then the limit is $10K not $20K. Practically, I think TD has no way compare annual purchases in individual account and trust account, so $10K individual + $10K trust purchases will not be flagged (as they would if you made 2 x $10K purchases in a single account).
I am confused :( , the other threads did mention that is legit contributing 10k with the same SSN to same person and 10k to his own Revocable Trust same year ...
That link I have to the Treasury does mention that some estates and trusts can also purchase I Bonds, but it doesn't go into detail. Additional research is necessary, unless someone already knows and can cite additional rules/regulations/laws. It does look like contributing using some sort of estate or trust is possible.
ivgrivchuck
Posts: 1105
Joined: Sun Sep 27, 2020 6:20 pm

Re: I Bonds- 7.12%- no brainer to buy? Use emergency fund ?

Post by ivgrivchuck »

wolf359 wrote: Sun Nov 07, 2021 11:31 pm That link I have to the Treasury does mention that some estates and trusts can also purchase I Bonds, but it doesn't go into detail. Additional research is necessary, unless someone already knows and can cite additional rules/regulations/laws. It does look like contributing using some sort of estate or trust is possible.
Might be of interest:
viewtopic.php?t=77395
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
Post Reply