I Bond fixed rate = 0.5%

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llama
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I Bond fixed rate = 0.5%

Post by llama » Thu Nov 01, 2018 9:13 am

The I Bond fixed rate is now at 0.5% (with the composite rate currently at 2.83%).

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I bond new rate posted - 2.83%

Post by Cpadave » Thu Nov 01, 2018 9:13 am

[Thread merged into here, see below. --admin LadyGeek]

https://www.treasurydirect.gov/indiv/pr ... glance.htm

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Re: I Bond fixed rate = 0.5%

Post by perl » Thu Nov 01, 2018 9:16 am

That's good news.

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Re: I bond new rate posted - 2.83%

Post by nisiprius » Thu Nov 01, 2018 9:16 am

The "fixed rate" is 0.50%. 2.83% is the "composite rate" which includes the current CPI.
Last edited by nisiprius on Thu Nov 01, 2018 12:43 pm, edited 1 time in total.
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Re: I Bond fixed rate = 0.5%

Post by Grt2bOutdoors » Thu Nov 01, 2018 9:21 am

Now we're talking.....can I hear 0.75%?
Who saw the WSJ this morning? Consumer inflation is coming next year, if you haven't already seen it in your wallet.
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Re: I Bond fixed rate = 0.5%

Post by mbasherp » Thu Nov 01, 2018 9:23 am

I'm considering redeeming some of my first I Bonds from a year ago (0.1% fixed) to roll them into the new rate.

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Re: I Bond fixed rate = 0.5%

Post by perl » Thu Nov 01, 2018 9:29 am

mbasherp wrote:
Thu Nov 01, 2018 9:23 am
I'm considering redeeming some of my first I Bonds from a year ago (0.1% fixed) to roll them into the new rate.
Good point. What's the calculation to decide if the lost interest from the older I bonds (if <5 years old) is worth it for the new higher fixed rate?

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Re: I bond new rate posted - 2.83%

Post by LocusCoeruleus » Thu Nov 01, 2018 9:37 am

Anyone else who hasn't purchased yet, thinking of buying their $10k now that the fixed is at 0.5%?

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Re: I Bond fixed rate = 0.5%

Post by Ice-9 » Thu Nov 01, 2018 9:38 am

perl wrote:
Thu Nov 01, 2018 9:29 am
mbasherp wrote:
Thu Nov 01, 2018 9:23 am
I'm considering redeeming some of my first I Bonds from a year ago (0.1% fixed) to roll them into the new rate.
Good point. What's the calculation to decide if the lost interest from the older I bonds (if <5 years old) is worth it for the new higher fixed rate?
For me, since I-Bonds more than a year old are not that different from an online savings account, it's whether the effective rate after 3-mo penalty becomes worse than what my online savings account is offering. New purchase will either come from the online savings account or early-redeemed old I-Bond. (Also have to factor in slightly for not having to pay State tax on the I-bond vs having to pay on the savings account.)

I have enough 0% I-Bonds older than five years that I won't have to worry about factoring in the 3-mo penalty for a while.
Last edited by Ice-9 on Thu Nov 01, 2018 9:42 am, edited 1 time in total.

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Re: I bond new rate posted - 2.83%

Post by aristotelian » Thu Nov 01, 2018 9:38 am

Dang, wish I had waited to buy.

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Re: I Bond fixed rate = 0.5%

Post by mbasherp » Thu Nov 01, 2018 9:45 am

perl wrote:
Thu Nov 01, 2018 9:29 am

Good point. What's the calculation to decide if the lost interest from the older I bonds (if <5 years old) is worth it for the new higher fixed rate?
In my case, I'm basically making my 11/2017 Ibond an 11 month CD. Its effective interest rate after penalties is still better than the best that was available at the time. Now I'm bumping my interest rate by 0.4% over the life of the bond. I see no downside.

I will, however, cash out today, but let the money sit in Vanguard Prime Money Market until about the 27th when I will buy again. Gotta pick up those pennies!

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Re: I Bond fixed rate = 0.5%

Post by BlackcatCA » Thu Nov 01, 2018 9:58 am

Ice-9 wrote:
Thu Nov 01, 2018 9:38 am
perl wrote:
Thu Nov 01, 2018 9:29 am
mbasherp wrote:
Thu Nov 01, 2018 9:23 am
I'm considering redeeming some of my first I Bonds from a year ago (0.1% fixed) to roll them into the new rate.
Good point. What's the calculation to decide if the lost interest from the older I bonds (if <5 years old) is worth it for the new higher fixed rate?
For me, since I-Bonds more than a year old are not that different from an online savings account, it's whether the effective rate after 3-mo penalty becomes worse than what my online savings account is offering. New purchase will either come from the online savings account or early-redeemed old I-Bond. (Also have to factor in slightly for not having to pay State tax on the I-bond vs having to pay on the savings account.)

I have enough 0% I-Bonds older than five years that I won't have to worry about factoring in the 3-mo penalty for a while.
Sorry for a naive question: I already bought 10k earlier this year, so I can’t buy more until Jan 2019, correct? At that time, is there benefit to redeem 10k from the 0% ones, rather than put in new money?

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Re: I Bond fixed rate = 0.5%

Post by feh » Thu Nov 01, 2018 10:21 am

I'll be buying before May. Already purchased 2018 limit.

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Re: I bond new rate posted - 2.83%

Post by feh » Thu Nov 01, 2018 10:26 am

aristotelian wrote:
Thu Nov 01, 2018 9:38 am
Dang, wish I had waited to buy.
You can buy more in January.

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Re: I bond new rate posted - 2.83%

Post by #Cruncher » Thu Nov 01, 2018 11:30 am

For those interested, here are the composite rates that will take effect from November 2018 to April 2019 [ 1 ] and run for six months for all outstanding I Bonds, including newly issued ones with a 0.50% fixed rate (see TreasuryDirect News Release). [ 2 ] They incorporate the new semi-annual inflation rate of 1.16%:

Code: Select all

  Fixed Rate Announced      Fixed   Composite
# Times   First    Last     Rate      Rate
-------  ------   ------    -----   ---------
    1    May 00             3.60%     5.96% [ 3 ]
    3    Sep 98   Nov 00    3.40%     5.76%
    2    Nov 98   May 99    3.30%     5.66%
    1    May 01             3.00%     5.35%
    2    Nov 01   May 02    2.00%     4.34%
    1    Nov 02             1.60%     3.94%
    2    May 06   Nov 06    1.40%     3.74%
    1    May 07             1.30%     3.64%

Code: Select all

    2    May 05   Nov 07    1.20%     3.53%
    2    May 03   Nov 03    1.10%     3.43%
    3    May 04   Nov 05    1.00%     3.33%
    1    Nov 08             0.70%     3.03%
    1    Nov 18             0.50%     2.83% <-- New purchases
    2    Nov 09   May 18    0.30%     2.62%
    2    May 10   Nov 13    0.20%     2.52%
    5    May 09   Nov 17    0.10%     2.42%
   11    May 08   May 17    0.00%     2.32%
These composite rates summarize the 1118 column near the left side of the I Bond Composite Rates triangle. The source is TreasuryDirect's What have the rates been in the past?.
  1. New composite rates take effect every six months based on the month an I Bond is purchased. For an I Bond purchased in May or November, the composite rates above will take effect November 2018 and run through April 2019. But for an I Bond purchased in April or October, they won't take effect until April 2019 and will run through September 2019. See When does my bond change rates?
  2. Click here for my post from six months ago with the previous composite rates.
  3. Composite rates are computed as follows:

    Code: Select all

    composite rate = fixed rate + ( 2 * inflation rate ) + ( fixed rate * inflation rate )
            0.0596 = 0.0360     + ( 2 * 0.0116         ) + ( 0.0360     * 0.0116         )

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Re: I Bond fixed rate = 0.5%

Post by Ice-9 » Thu Nov 01, 2018 11:33 am

BlackcatCA wrote:
Thu Nov 01, 2018 9:58 am
Ice-9 wrote:
Thu Nov 01, 2018 9:38 am
perl wrote:
Thu Nov 01, 2018 9:29 am
mbasherp wrote:
Thu Nov 01, 2018 9:23 am
I'm considering redeeming some of my first I Bonds from a year ago (0.1% fixed) to roll them into the new rate.
Good point. What's the calculation to decide if the lost interest from the older I bonds (if <5 years old) is worth it for the new higher fixed rate?
For me, since I-Bonds more than a year old are not that different from an online savings account, it's whether the effective rate after 3-mo penalty becomes worse than what my online savings account is offering. New purchase will either come from the online savings account or early-redeemed old I-Bond. (Also have to factor in slightly for not having to pay State tax on the I-bond vs having to pay on the savings account.)

I have enough 0% I-Bonds older than five years that I won't have to worry about factoring in the 3-mo penalty for a while.
Sorry for a naive question: I already bought 10k earlier this year, so I can’t buy more until Jan 2019, correct? At that time, is there benefit to redeem 10k from the 0% ones, rather than put in new money?
If you've already reached your 2018 limit, you'll have to wait until 2019 to buy more, correct.

Everyone's situation is different, and of course we don't know yet what comparable investment rates will be in January. But if you're planning to invest more into I-Bonds in January, I'd only redeem the older I-bonds for that purpose if their rates are no longer attractive compared with whatever account your "new money" is located. I'm horrible at predictions, but if I had to guess today, I don't think online savings account rates in January will make 0.1% fixed rate I-bonds look too bad at that time. So probably buying from "new money" will make more sense.

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Re: I Bond fixed rate = 0.5%

Post by oslocal » Thu Nov 01, 2018 12:12 pm

Thanks! I will prioritize making a late November purchase.

For purchasing bonds with your tax refund, can you simply submit a payment with your extension application or does it have to come from estimated payments and withholding?

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Re: I Bond fixed rate = 0.5%

Post by cjg » Thu Nov 01, 2018 12:30 pm

For comparison, 5-10 year TIPS have a around a 1.1% yield. A 0.5% rate isn't bad due to the flexibility I-Bonds have with terms but I don't think it's enough to get me to want to deal with treasury direct either.

https://www.treasury.gov/resource-cente ... =realyield

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Re: I Bond fixed rate = 0.5%

Post by bligh » Thu Nov 01, 2018 12:31 pm

That is great news!

I look forward to buying mine in January! Too bad I already bought in for 2018.

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Re: I Bond fixed rate = 0.5%

Post by bligh » Thu Nov 01, 2018 12:32 pm

cjg wrote:
Thu Nov 01, 2018 12:30 pm
For comparison, 5-10 year TIPS have a around a 1.1% yield. A 0.5% rate isn't bad due to the flexibility I-Bonds have with terms but I don't think it's enough to get me to want to deal with treasury direct either.

https://www.treasury.gov/resource-cente ... =realyield
The tax deferral aspect is huge for people like me who are in a very high tax bracket and who plan on retiring early in a no tax state at a much lower tax bracket.

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Re: I bond new rate posted - 2.83%

Post by nisiprius » Thu Nov 01, 2018 12:44 pm

I just ordered $10,000 worth (into my wife's account! I bought $10,000 in my own account earlier this year).
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Re: I Bond fixed rate = 0.5%

Post by PugetSoundguy » Thu Nov 01, 2018 12:45 pm

The tax deferral aspect is huge for people like me who are in a very high tax bracket and who plan on retiring early in a no tax state at a much lower tax bracket.
Being in a lower federal income tax bracket will help when you redeem the bonds, but being in a no tax state does not matter because interest on I Bonds is not subject to state or local income tax.

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Re: I Bond fixed rate = 0.5%

Post by bhsince87 » Thu Nov 01, 2018 12:58 pm

What is the advantage of cashing in an older I bond to buy a new one?

Wouldn't you be better off to use other cash to buy a new one?


Seems like you are "wasting" tax advantaged space with the $10k limit.

I can see if you are in the decumulation stage it would make sense.
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Re: I Bond fixed rate = 0.5%

Post by patrick » Thu Nov 01, 2018 2:31 pm

bhsince87 wrote:
Thu Nov 01, 2018 12:58 pm
What is the advantage of cashing in an older I bond to buy a new one?

Wouldn't you be better off to use other cash to buy a new one?


Seems like you are "wasting" tax advantaged space with the $10k limit.

I can see if you are in the decumulation stage it would make sense.
Whether to buy new I bonds should be a separate decision from whether to keep old ones, provided you have sufficient funds to do both without going over your intended bond allocation. While the older I bonds are still tax advantaged, they are yield disadvantaged -- their fixed rates are far below the current yields on regular TIPS.

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Re: I Bond fixed rate = 0.5%

Post by mbasherp » Thu Nov 01, 2018 2:46 pm

bhsince87 wrote:
Thu Nov 01, 2018 12:58 pm
What is the advantage of cashing in an older I bond to buy a new one?

Wouldn't you be better off to use other cash to buy a new one?


Seems like you are "wasting" tax advantaged space with the $10k limit.

I can see if you are in the decumulation stage it would make sense.
In my case, I bonds are a tier of my emergency fund. I am not purchasing anywhere near the $10k limit at any given time. I plan to rotate into higher fixed rates as the opportunity presents itself, while managing the liquidity I require of my emergency fund.

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Re: I Bond fixed rate = 0.5%

Post by GerryL » Thu Nov 01, 2018 3:06 pm

I bought several I bonds some years back when they were an especially attractive investment (early 2000s?). They have been growing nicely and I just leave them alone. I recently read something that made me realize that my little stash of I bonds could be a Federal tax time bomb … set to go off just as my RMDs are due to getting fatter (when I'm into my 80s). Is anybody here strategizing how to dispose of I bonds before they begin crashing into large RMDs?

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Re: I Bond fixed rate = 0.5%

Post by ThisTimeItsDifferent » Thu Nov 01, 2018 3:14 pm

One could use the 529 shuffle to provide for tax free maturity for education expenses of up to 2 generations away.

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Re: I Bond fixed rate = 0.5%

Post by Watty » Thu Nov 01, 2018 3:37 pm

GerryL wrote:
Thu Nov 01, 2018 3:06 pm
I bought several I bonds some years back when they were an especially attractive investment (early 2000s?). They have been growing nicely and I just leave them alone. I recently read something that made me realize that my little stash of I bonds could be a Federal tax time bomb … set to go off just as my RMDs are due to getting fatter (when I'm into my 80s). Is anybody here strategizing how to dispose of I bonds before they begin crashing into large RMDs?
There is a significant chance that you will not live into the 2030's so that might not happen. If you are still alive a few years before the iBonds mature than you could cash them out over several years starting a few years earlier and not lose too much interest.

Reading between the lines I would suspect that you have more savings than you will need in your lifetime even if you live to an exceptional age. If this is true then the estate planning considerations may be as important as the yearly tax issues. One problem with iBonds is that they are one of the few assets that do not go to your estate at a stepped up cost basis so it would be good to factor that into your plans.

There were some old posts on iBonds that you may be able to find and I don't recall the details but apparently there is a way to use iBonds to fund a 529 for your grandkids that would bypass paying taxes on it. There are likely a lot of details on how that would need to be done and there may be income limits.

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Re: I Bond fixed rate = 0.5%

Post by LadyGeek » Thu Nov 01, 2018 3:41 pm

I merged Cpadave's thread into the ongoing discussion.
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Re: I Bond fixed rate = 0.5%

Post by bligh » Thu Nov 01, 2018 3:51 pm

PugetSoundguy wrote:
Thu Nov 01, 2018 12:45 pm
The tax deferral aspect is huge for people like me who are in a very high tax bracket and who plan on retiring early in a no tax state at a much lower tax bracket.
Being in a lower federal income tax bracket will help when you redeem the bonds, but being in a no tax state does not matter because interest on I Bonds is not subject to state or local income tax.
Good point. I forgot about that.

TIPS and IBonds both share the advantage of no State Income Tax.

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Re: I bond new rate posted - 2.83%

Post by jacoavlu » Thu Nov 01, 2018 4:13 pm

nisiprius wrote:
Thu Nov 01, 2018 12:44 pm
I just ordered $10,000 worth (into my wife's account! I bought $10,000 in my own account earlier this year).
rookie mistake; I'll wait until the end of the month :wink:

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Re: I Bond fixed rate = 0.5%

Post by GerryL » Thu Nov 01, 2018 4:17 pm

Watty wrote:
Thu Nov 01, 2018 3:37 pm
GerryL wrote:
Thu Nov 01, 2018 3:06 pm
I bought several I bonds some years back when they were an especially attractive investment (early 2000s?). They have been growing nicely and I just leave them alone. I recently read something that made me realize that my little stash of I bonds could be a Federal tax time bomb … set to go off just as my RMDs are due to getting fatter (when I'm into my 80s). Is anybody here strategizing how to dispose of I bonds before they begin crashing into large RMDs?
There is a significant chance that you will not live into the 2030's so that might not happen. :shock: Not my plan, but then I personally wouldn't care! If you are still alive a few years before the iBonds mature than you could cash them out over several years starting a few years earlier and not lose too much interest.

Reading between the lines I would suspect that you have more savings than you will need in your lifetime even if you live to an exceptional age. Yes. This is the "problem" (GPTH) If this is true then the estate planning considerations may be as important as the yearly tax issues. One problem with iBonds is that they are one of the few assets that do not go to your estate at a stepped up cost basis so it would be good to factor that into your plans. Yup. If I will them to my nephew, he has to deal with the tax issues. And I can't just pass them along to a charity. Would have to cash them out (tax event) then donate the money. I am anticipating that QCDs will grow significantly in my later years. That's fine. More fun seeing donations being put to good use.

There were some old posts on iBonds that you may be able to find and I don't recall the details but apparently there is a way to use iBonds to fund a 529 for your grandkids that would bypass paying taxes on it. No kids. No grandkids. There are likely a lot of details on how that would need to be done and there may be income limits.

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Re: I Bond fixed rate = 0.5%

Post by Broken Man 1999 » Thu Nov 01, 2018 6:06 pm

GerryL wrote:
Thu Nov 01, 2018 3:06 pm
I bought several I bonds some years back when they were an especially attractive investment (early 2000s?). They have been growing nicely and I just leave them alone. I recently read something that made me realize that my little stash of I bonds could be a Federal tax time bomb … set to go off just as my RMDs are due to getting fatter (when I'm into my 80s). Is anybody here strategizing how to dispose of I bonds before they begin crashing into large RMDs?
I'll be in the same boat, though it is a nice problem to have. Not even a problem, more like an issue that will have to be thought through carefully.

I haven't checked their value since the last, and final, update of Savings Bond Wizard.

All my I bonds are now at least 3% fixed. So just for fun, I used the last calculated value, May of this year, and just assumed no inflation adjustment and ran out the compounding of 3% until maturity. Wow!

Someone is going to be very happy. Not sure it will be me, but that is OK.

First world problem.

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Re: I Bond fixed rate = 0.5%

Post by z3r0c00l » Thu Nov 01, 2018 6:21 pm

You pay more taxes when you earn more, I will take that problem any day of the week. Glad to see a bump, and it is modest enough not to make me regret buying my 10k last month!

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Re: I Bond fixed rate = 0.5%

Post by columbia » Thu Nov 01, 2018 6:30 pm

Question for retired I bond purchasers:

What are you selling to buy them?

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Re: I Bond fixed rate = 0.5%

Post by Broken Man 1999 » Thu Nov 01, 2018 6:46 pm

I have always thought that I Bonds were under appreciated.

They are a simple investment, but after the initial holding period, they become pretty handy. They can be a short-term bond, an intermediate-term bond, or even a long-term bond. No premium to buy, no discount to redeem, save some interest if held less than 5 years (?).

Never affected by deflation (at least the bond's current value) except for no inflation adjustment, unlike TIPs.

Immediate receipt of money when redeemed. Scads of places to redeem, if paper bonds. If held at Treasury Direct you will have the proceeds in two business days after sell.

A simple investment that is actually pretty sophisticated when all the pluses are considered.

The one knock is they are pretty impractical if one needs to build their bond holdings rapidly. But, certainly worth the periodic purchase for most investors.

Broken Man 1999
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Re: I Bond fixed rate = 0.5%

Post by Rwsawbones » Thu Nov 01, 2018 6:59 pm

There is another potential tax bomb should one live to 95 or 100 namely cash value life insurance. In many cases the policies mature at those ages and pays you the cash value. The solution is similar to that proposed for I bonds namely take distributions for several years before those ages. Of course if one dies the beneficiary will receive the proceeds tax free. A crystal ball would be very useful

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Re: I Bond fixed rate = 0.5%

Post by Austintatious » Thu Nov 01, 2018 7:30 pm

columbia wrote:
Thu Nov 01, 2018 6:30 pm
Question for retired I bond purchasers:

What are you selling to buy them?
A couple of taps on the keyboard can transform a portion of one's Social Security payment into an I bond. No sale required, there. That assumes, of course, that one isn't dependent on all of their monthly benefit for day-to-day living expenses.

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Re: I Bond fixed rate = 0.5%

Post by sksbog » Thu Nov 01, 2018 8:12 pm

Grt2bOutdoors wrote:
Thu Nov 01, 2018 9:21 am
Now we're talking.....can I hear 0.75%?
Who saw the WSJ this morning? Consumer inflation is coming next year, if you haven't already seen it in your wallet.
Ordered as the side with my burger and drink. :greedy

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Re: I Bond fixed rate = 0.5%

Post by JBTX » Thu Nov 01, 2018 8:14 pm

I am a bit puzzled what I should do. Have several years worth of ibonds purchases - I'd say 10 years old on average, give or take. I consider them a backup source of EF and liquidity. They are mostly at 0% fixed. I was planning on potentially using them if needed as a secondary source of college funding for child who starts college next year. Child has probably 2-3 years of 529 state school level of funding.

I haven't checked in a while but they have probably accumulated/appreciated 15-20%. So if I cashed/traded them now I'd probably pay taxes amounting to 3-4% of face value. Alternatively I could hold them and potentially cash them in tax free for college for kid. But you are losing 0.5% a year, and my plan was to go through 529 first. Second child likely won't go to traditional college (special needs).

So do I:

1. Trade some out in 2018, pay the tax, start earning higher interest but potentially suffer modest penalty if needed for college within 5 years.

2. Hold them and use them for college and maybe get tax exemption?

3. Don't sell this year, but sell next year and apply towards college?

4. Is it better to go through 529 first of go though ibonds first? My plan was to hold the ibonds until later given they are more liquid and flexible.

5. Can ibonds in my name and wife's name be used for kid's college and get tax exemption?

6. Conceivably I could use ibonds first, hold the 529, and if for some reason the 529 doesn't get used up move it to other child and roll it into a 529 able.

I'm inclined to sit on them for now but appreciate any perspectives.

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Re: I Bond fixed rate = 0.5%

Post by jackholloway » Thu Nov 01, 2018 8:17 pm

I bought mine a few months ago, betting on flat fixed rates.

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Re: I Bond fixed rate = 0.5%

Post by GerryL » Thu Nov 01, 2018 8:26 pm

z3r0c00l wrote:
Thu Nov 01, 2018 6:21 pm
You pay more taxes when you earn more, I will take that problem any day of the week. Glad to see a bump, and it is modest enough not to make me regret buying my 10k last month!
Yup. Expect to pay progressively higher taxes, but my "game" going forward is to keep my MAGI below the IRMAA cliff so I don't have to pay increased premiums for Medicare if I pass the threshold by just a few dollars. I appreciate that I can plan to use charitable giving through QCDs, now that that option is "permanent."

DorothyB
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Re: I Bond fixed rate = 0.5%

Post by DorothyB » Thu Nov 01, 2018 8:33 pm

columbia wrote:
Thu Nov 01, 2018 6:30 pm
Question for retired I bond purchasers:

What are you selling to buy them?
I have multiple sources of income:
pension
social security survivor benefits (will switch to my social security benefits at age 90)
retirement savings

My retirement savings are mostly invested in equity mutual funds with all dividends & capital gains going to a money market account. I keep four year's worth of the money that I would need to withdraw from retirement savings (excluding estimated dividends) out of the equity mutual funds. I consider this my "buffer" and will use it when the market is down instead of selling any equity mutual funds. Some of it is still in pre-tax IRA, but I am taking some out each year as I can without bumping into the next tax bracket. I put $10K of this money in Synchrony earlier this year for the express purpose of buying I Bonds.

bhsince87
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Re: I Bond fixed rate = 0.5%

Post by bhsince87 » Thu Nov 01, 2018 8:39 pm

mbasherp wrote:
Thu Nov 01, 2018 2:46 pm
bhsince87 wrote:
Thu Nov 01, 2018 12:58 pm
What is the advantage of cashing in an older I bond to buy a new one?

Wouldn't you be better off to use other cash to buy a new one?


Seems like you are "wasting" tax advantaged space with the $10k limit.

I can see if you are in the decumulation stage it would make sense.
In my case, I bonds are a tier of my emergency fund. I am not purchasing anywhere near the $10k limit at any given time. I plan to rotate into higher fixed rates as the opportunity presents itself, while managing the liquidity I require of my emergency fund.
Makes sense. Thanks!
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

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Blueskies123
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Re: I Bond fixed rate = 0.5%

Post by Blueskies123 » Thu Nov 01, 2018 8:59 pm

Are not TIPS yielding (real) more than 1%? Why buy IBonds?

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jeffyscott
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Re: I Bond fixed rate = 0.5%

Post by jeffyscott » Thu Nov 01, 2018 10:12 pm

columbia wrote:
Thu Nov 01, 2018 6:30 pm
Question for retired I bond purchasers:

What are you selling to buy them?
I'm not sure if I'll buy, but my current first choice for any selling (for whatever reason) would be old I-bonds with 0% fixed rate. Sold some today, proceeds will fund a 529.

To equal a 1 year treasury over the next year, the I-bond would need to earn about 3.2%.The 1 year treasury is at 2.67%, in the first year the I-bond would have at least a 2 month penalty, with optimal timing of buy and sell. So it would need to earn at least 2.67% in 10 months or annual rate of about 3.2%. With that and TIPS rates being at ~1% (and VTAPX real SEC yield of 0.9%), there does not seem to be a good reason to buy 0.5% I-bonds for either short or long-term purposes in my situation?
Time is your friend; impulse is your enemy. - John C. Bogle

ThisTimeItsDifferent
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Re: I Bond fixed rate = 0.5%

Post by ThisTimeItsDifferent » Thu Nov 01, 2018 10:13 pm

Blueskies123 wrote:
Thu Nov 01, 2018 8:59 pm
Are not TIPS yielding (real) more than 1%? Why buy IBonds?
Doesn't one have to pay income tax on imputed income each year for TIPS, but not iBonds?

Are TIPS marketable, meaning that selling them before maturity would be at a market price which may be for more or less than their purchase price and interest while iBonds have a defined pre-maturity redemption value?

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allwin
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Re: I Bond fixed rate = 0.5%

Post by allwin » Thu Nov 01, 2018 10:15 pm

Blueskies123 wrote:
Thu Nov 01, 2018 8:59 pm
Are not TIPS yielding (real) more than 1%? Why buy IBonds?
Here's a relevant excerpt from a recent seeking alpha article:
A fixed rate of 0.50% on I Bonds - which are among the safest investments in the world - keeps them competitive with 5-year and 10-year Treasury Inflation-Protected Securities, which currently have real returns of 1.08% and 1.10%, respectively. The after-inflation return on I Bonds typically lags the return on TIPS by at least 50 basis points, and sometimes well over 100 basis points. Why? The I Bond has advantages of flexible maturity, tax deferral and solid deflation protection, so some spread is justified.

Once the fixed rate reaches 0.50%, I Bonds are very likely to match or outperform inflation, even after income taxes are paid, as long as inflation continues in a moderate range. Today's inflation rate is 2.3%, equating to a return of 2.8% on an I Bond, which is about 22% higher than inflation.

Day9
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Re: I Bond fixed rate = 0.5%

Post by Day9 » Thu Nov 01, 2018 10:35 pm

My modest bond portfolio is just in treasuries and CDs at the moment. I don't have any TIPS or I-Bonds. I suspect that it would be a good idea to buy my $10,000 of I-Bonds, while simultaneously extending the duration of the rest of my bond portfolio a bit. I suspect I can improve my risk-adjusted returns this way.
I'm just a fan of the person I got my user name from

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Re: I Bond fixed rate = 0.5%

Post by fennewaldaj » Thu Nov 01, 2018 11:09 pm

I would like to get into I bonds eventually. At the moment our savings rate mostly fits entirely in tax advantaged accounts. I have a 457 in addition to a 403b and wifes 401k and IRAs. Its kinda hard for us to save much beyond that already substantial amount.

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