Best Timing For I-Bond Redemptions For Managing Taxes

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dagsboro
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Joined: Tue Aug 23, 2022 4:45 pm

Best Timing For I-Bond Redemptions For Managing Taxes

Post by dagsboro »

In my eighties I have lots of I-Bonds which have accrued considerable interest over the years. Most will mature within ten years. Redeeming some early seems like a way to minimize taxes because federal taxes are likely to increase. But redeeming some early means higher taxes right now. In addition, putting the proceeds into CD's would just produce more taxable interest. Shall I delay redeeming most of these I-Bonds until they are fully matured in ten years and pay the taxes then or let my heirs pay them? Putting the proceeds into equities or muni's has no appeal but holding the proceeds in non -income producing cash seems wasteful. And I don't want to buy real estate. I know about gifting and QCD's but we may need long term care so I'm not enthusiastic about giving away our money. But I don't want to get really Whacked on taxes 10 years from now if I delay redemption until full maturity.
Will I be doing the smart thing by starting to cash these I-Bonds in early but being careful not to exceed the Income Related Monthly Adjustment Amount? I don't need the money from these I-Bonds right now. Thanks.
Topic Author
dagsboro
Posts: 176
Joined: Tue Aug 23, 2022 4:45 pm

Re: Best Timing For I-Bond Redemptions For Managing Taxes

Post by dagsboro »

TipsWatch.com has a February 4, 2024 article by David Enders titled: Long Time Holders of I Bonds Face Tax Time Bomb that is well worth reading for some of us.
Money_Badger
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Location: Raleigh NC

Re: Best Timing For I-Bond Redemptions For Managing Taxes

Post by Money_Badger »

dagsboro wrote: Mon Feb 12, 2024 5:43 am In my eighties I have lots of I-Bonds which have accrued considerable interest over the years. Most will mature within ten years. Redeeming some early seems like a way to minimize taxes because federal taxes are likely to increase. But redeeming some early means higher taxes right now. In addition, putting the proceeds into CD's would just produce more taxable interest. Shall I delay redeeming most of these I-Bonds until they are fully matured in ten years and pay the taxes then or let my heirs pay them? Putting the proceeds into equities or muni's has no appeal but holding the proceeds in non -income producing cash seems wasteful. And I don't want to buy real estate. I know about gifting and QCD's but we may need long term care so I'm not enthusiastic about giving away our money. But I don't want to get really Whacked on taxes 10 years from now if I delay redemption until full maturity.
Will I be doing the smart thing by starting to cash these I-Bonds in early but being careful not to exceed the Income Related Monthly Adjustment Amount? I don't need the money from these I-Bonds right now. Thanks.
There is a long thread about the difficulty in dealing with Treasury Direct in transferring I Bonds upon the death of the bondholder. It apparently is truly a nightmare and can take up to a year.

I wouldn't put that on your heirs ... I'd start slowly cashing them in. I don't quite get your concern about investing the proceeds, yes, you generate passive income; but isn't it better to earn a $100 and pay $30 in tax than it is to let it sit and earn nothing?
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