What's the catch with I Bonds?

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FoundingFather
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Re: What's the catch with I Bonds?

Post by FoundingFather »

Angst wrote: As an aside, I wish that some of the wealthier Bogleheads who can't be bothered with a measly $10,000 investment could just refrain from saying so. I don't think the rest of us need advice as to whether or not a $10,000 chunk-of-change is worth dealing with in our own portfolios.
When I first found bogleheads, one of the things I most appreciated about this group was how clear and carefully constructed most of the advice was. I hope we can keep that alive so that young, new investors with small portfolios are able to get the great advice that this forum has to offer without being scared away by any sloppy, slightly arrogant, or possibly misleading comments.

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flipmode1246
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Re: What's the catch with I Bonds?

Post by flipmode1246 »

Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
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nps
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Re: What's the catch with I Bonds?

Post by nps »

flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
Only if married filing separately can you get 2 times the $5,000 tax refund.
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emlowe
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Re: What's the catch with I Bonds?

Post by emlowe »

3.54% inflation rate was good, but the August inflation rate is in, and now I Bonds now looking like a variable rate of 6.5% for six months on Nov.1

(I would guess the fixed rate will stay at 0)

August inflation points to a 6.5%+ inflation-adjusted rate for I Bond

https://tipswatch.com/2021/09/14/august ... -and-tips/
Ferri Core 4: 40% Bonds | 6% Reit | 18% Total i18n | 36% Total US
AnEngineer
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Re: What's the catch with I Bonds?

Post by AnEngineer »

nps wrote: Wed Sep 15, 2021 6:22 pm
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
Only if married filing separately can you get 2 times the $5,000 tax refund.
Anything to keep you from amending to MFJ after getting the I bonds?
kaseg
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Re: What's the catch with I Bonds?

Post by kaseg »

emlowe wrote: Wed Sep 15, 2021 6:33 pm 3.54% inflation rate was good, but the August inflation rate is in, and now I Bonds now looking like a variable rate of 6.5% for six months on Nov.1
Assuming this is correct, this interest would be paid on any I Bonds purchased through the end of April 2022 for 6 months starting on the date they were bought correct? If so, its going to be hard to pass up next year.
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ApeAttack
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Re: What's the catch with I Bonds?

Post by ApeAttack »

kaseg wrote: Wed Sep 15, 2021 10:04 pm
emlowe wrote: Wed Sep 15, 2021 6:33 pm 3.54% inflation rate was good, but the August inflation rate is in, and now I Bonds now looking like a variable rate of 6.5% for six months on Nov.1
Assuming this is correct, this interest would be paid on any I Bonds purchased through the end of April 2022 for 6 months starting on the date they were bought correct? If so, its going to be hard to pass up next year.
Yes, you would receive 6.5% for six months even if you bought on April 30, 2022.

I also like the 3.54%, so I will be maxing out my limit for this year at the end of September. The 6.5% will kick in during March for this batch of I-Bonds.
May all your index funds gain +0.5% today.
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ApeAttack
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Re: What's the catch with I Bonds?

Post by ApeAttack »

kakemono wrote: Tue Sep 14, 2021 12:34 pm
IRouteIP wrote: Tue Aug 24, 2021 5:37 pm I just made my first I bond purchase and found the process to be pretty painless.

The TD website is not terrible, as some have claimed. I created my account and linked my bank account a couple of days ago. I did not need any signatures, medallion or otherwise. Tonight I just logged in, entered the amount, clicked submit, and done.

I have seen several posts from members passing on I bonds because they don't want to deal with the TreasuryDirect website. Maybe I got lucky or maybe my situation is not as complex as others, but, I had no issues with the site.
I had the same experience. Simple enough. It isn't modern, but it works fine.

I just read about I-Bonds and plan to transition my emergency fund 10k at a time.
That's what I started doing during May of this year. It was a great time to learn about I-Bonds... just in time to get at least 1 year of great rates (3.54% and around 6.5%).

Now I just have to wait to get past the 1 year holding period. Fortunately, I don't think I'll need that money anytime soon.
May all your index funds gain +0.5% today.
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Re: What's the catch with I Bonds?

Post by Darth Xanadu »

ApeAttack wrote: Wed Sep 15, 2021 10:40 pm
I also like the 3.54%, so I will be maxing out my limit for this year at the end of September. The 6.5% will kick in during March for this batch of I-Bonds.
I just bought my annual maximum this evening. It's nice knowing that I have a very good rate for the next 6 months, and an even better rate for the subsequent 6 months.

(I'm aware that the optimal time to purchase is the end of the month. Didn't really feel like waiting for the dollar or two I probably could have otherwise earned).

This is the 4th consecutive year that I've purchased my individual maximum. In a few years, I can probably reduce / eliminate the traditional emergency fund if it makes sense to do so. Even further down the road, if my kids end up continuing education past high school I'll have a nice stash to help them out if needed.
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Mel Lindauer
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
Best Regards - Mel | | Semper Fi
BHawks87
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Re: What's the catch with I Bonds?

Post by BHawks87 »

viewtopic.php?t=231372

This thread seems to suggest that the $10k limit per person isn't STRICTLY enforced. (not suggesting anyone try to buy over the limit)

Do you think that also means if you get into a financial hardship and have I-Bonds that haven't hit the 1 year mark they may allow you to cash them in early if you ask? Just curious.
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Re: What's the catch with I Bonds?

Post by ApeAttack »

Darth Xanadu wrote: Wed Sep 15, 2021 11:18 pm
ApeAttack wrote: Wed Sep 15, 2021 10:40 pm
I also like the 3.54%, so I will be maxing out my limit for this year at the end of September. The 6.5% will kick in during March for this batch of I-Bonds.
I just bought my annual maximum this evening. It's nice knowing that I have a very good rate for the next 6 months, and an even better rate for the subsequent 6 months.

(I'm aware that the optimal time to purchase is the end of the month. Didn't really feel like waiting for the dollar or two I probably could have otherwise earned).

This is the 4th consecutive year that I've purchased my individual maximum. In a few years, I can probably reduce / eliminate the traditional emergency fund if it makes sense to do so. Even further down the road, if my kids end up continuing education past high school I'll have a nice stash to help them out if needed.
I am getting a little antsy to purchase too. So I set TD to automatically purchase a few days before the end of the month. For some reason that helped me stop thinking about it so much.
May all your index funds gain +0.5% today.
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nps
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Re: What's the catch with I Bonds?

Post by nps »

Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.
Why must it be MFJ?
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Re: What's the catch with I Bonds?

Post by Angst »

ApeAttack wrote: Wed Sep 15, 2021 10:40 pm
kaseg wrote: Wed Sep 15, 2021 10:04 pm
emlowe wrote: Wed Sep 15, 2021 6:33 pm 3.54% inflation rate was good, but the August inflation rate is in, and now I Bonds now looking like a variable rate of 6.5% for six months on Nov.1
Assuming this is correct, this interest would be paid on any I Bonds purchased through the end of April 2022 for 6 months starting on the date they were bought correct? If so, its going to be hard to pass up next year.
Yes, you would receive 6.5% for six months even if you bought on April 30, 2022.

I also like the 3.54%, so I will be maxing out my limit for this year at the end of September. The 6.5% will kick in during March for this batch of I-Bonds.
Of course we won't know the rate until October, but any I Bond purchased simply in any of the months of November thru April in any year, will begin paying the new November 2021 inflation rate (6.5%?) in that month (or if purchased in May thru Oct, then 6 months later), plus the fixed rate that came with the I Bond in the year/month it was purchased, so that means "at least 6.5%". Unsurprisingly, the fixed rate has been mired at 0% for I Bonds bought since May 2020: http://eyebonds.info/ibonds/rates.html

Anyone interested in I Bonds will likely appreciate #Cruncher's entire website:
http://eyebonds.info
Last edited by Angst on Thu Sep 16, 2021 7:35 am, edited 1 time in total.
AnEngineer
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Re: What's the catch with I Bonds?

Post by AnEngineer »

Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
You can get paper I bonds with a MFS return.
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Re: What's the catch with I Bonds?

Post by ApeAttack »

Angst wrote: Thu Sep 16, 2021 6:18 am
ApeAttack wrote: Wed Sep 15, 2021 10:40 pm
kaseg wrote: Wed Sep 15, 2021 10:04 pm
emlowe wrote: Wed Sep 15, 2021 6:33 pm 3.54% inflation rate was good, but the August inflation rate is in, and now I Bonds now looking like a variable rate of 6.5% for six months on Nov.1
Assuming this is correct, this interest would be paid on any I Bonds purchased through the end of April 2022 for 6 months starting on the date they were bought correct? If so, its going to be hard to pass up next year.
Yes, you would receive 6.5% for six months even if you bought on April 30, 2022.

I also like the 3.54%, so I will be maxing out my limit for this year at the end of September. The 6.5% will kick in during March for this batch of I-Bonds.
Of course we won't know the rate until October, but any I Bond purchased simply in any of the months of November thru April in any year, will begin paying the new November 2021 inflation rate (6.5%?) in that month (or if purchased in May thru Oct, then 6 months later), plus the fixed rate that came with the I Bond in the year/month it was purchased, so that means "at least 6.5%". Unsurprisingly, the fixed rate has been mired at 0% for I Bonds bought since May 2020: http://eyebonds.info/ibonds/rates.html

Anyone interested in I Bonds will likely appreciate #Cruncher's entire website:
http://eyebonds.info
Good point about the "at least 6.5%" (assuming the variable rate is 6.5%, of course). I'm new to the I-Bond game and have only experienced 0% fixed rates thus far... I sometimes forget about the fixed rate.

That website is really nice.
May all your index funds gain +0.5% today.
Arby
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Re: What's the catch with I Bonds?

Post by Arby »

SnowBog wrote: Wed Sep 15, 2021 12:58 pm

Spot on!

I have to admit, I used to think I/EE Bonds were NOT worth the effort.

Since then, I've become a strong support of I Bonds for pretty much anyone :sharebeer
I'm glad that you added "pretty much" :happy

If I could buy I Bonds through the Fidelity platform I would max it out in a heartbeat. But I live overseas with no intention of returning stateside. I am also pretty sure my portfolio is in the bottom quintile of Boglehead's portfolios so the total dollar amount of the juiced up return would be quite meaningful to me.. But being cutoff from my money with no easy solution due to a tech problem with the website is a very real concern to me. It's not worth my time and certainly not worth the stress.
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

AnEngineer wrote: Thu Sep 16, 2021 7:11 am
Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
You can get paper I bonds with a MFS return.
Do you have a link to an official reference showing that a coupe filing a joint return can get more than $5k in paper savings bonds? It's my understanding that a couple filing jointly can only get $5k.
Best Regards - Mel | | Semper Fi
Angst
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Re: What's the catch with I Bonds?

Post by Angst »

Arby wrote: Thu Sep 16, 2021 12:21 pmIf I could buy I Bonds through the Fidelity platform I would max it out in a heartbeat. But I live overseas with no intention of returning stateside. I am also pretty sure my portfolio is in the bottom quintile of Boglehead's portfolios so the total dollar amount of the juiced up return would be quite meaningful to me.. But being cutoff from my money with no easy solution due to a tech problem with the website is a very real concern to me. It's not worth my time and certainly not worth the stress.
Yeah, I appreciate your situation. There are going to be some, like yours, that may be prohibitively problematic. I do think it's unfortunate still how hammered the Treasury Direct (TD) website gets in board discussions. There are definitely situations that can end up causing the dreaded medallion guarantee to be required. But IF you really wish you could have I Bonds, have you considered at least risking the bare minimum $25 investment and set up an account to try it out? I do believe that the lockouts come about due to factors that one can avoid if you're extremely careful, particularly, once you've already set up the account and have successfully bought I Bonds, even with just with $25.

Simply buying and selling in one's established TD account does not seem to me to be what brings about situations that lead one to have to get the medallion guarantee. For me, with more than a decade now using TD, the process of buying, and selling I and EE Bonds has debited and credited from and to my bank account without any issues whatsoever.

Below are the things I would absolutely never do in YOUR unique situation if I were going to try to maintain a TD account:
- Once set up, don't ever try to add/change/modify your TD associated bank account info in any way
- Don't try to add/modify any account ownership/beneficiary or email info in any way after it's set up
- NEVER incorrectly enter your password multiple times and get locked out
- In your web browser, NEVER use its "back-page" button or the "Ctrl-arrow" back-page keystrokes

I'm not saying you don't have an excellent reason for staying away completely from TD, but you could consider this - it would only cost (risking) $25 to gain useful first-hand experience. Then again, perhaps someone may yet contradict my assumptions about what might lead one to being locked out.
Last edited by Angst on Thu Sep 16, 2021 2:02 pm, edited 1 time in total.
AnEngineer
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Re: What's the catch with I Bonds?

Post by AnEngineer »

Mel Lindauer wrote: Thu Sep 16, 2021 1:27 pm
AnEngineer wrote: Thu Sep 16, 2021 7:11 am
Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
You can get paper I bonds with a MFS return.
Do you have a link to an official reference showing that a coupe filing a joint return can get more than $5k in paper savings bonds? It's my understanding that a couple filing jointly can only get $5k.
I didn't say you can get more than $5k with a MFJ return, I said that you can get I bonds with a MFS return.
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

AnEngineer wrote: Thu Sep 16, 2021 1:49 pm
Mel Lindauer wrote: Thu Sep 16, 2021 1:27 pm
AnEngineer wrote: Thu Sep 16, 2021 7:11 am
Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
You can get paper I bonds with a MFS return.
Do you have a link to an official reference showing that a coupe filing a joint return can get more than $5k in paper savings bonds? It's my understanding that a couple filing jointly can only get $5k.
I didn't say you can get more than $5k with a MFJ return, I said that you can get I bonds with a MFS return.

I didn't see that in your post that I quoted. If you posted it somewhere else, I must have missed it. Most couples file MFJ in which case the limit is $5k. Not sure if it's worth the extra effort of going through filing MFS just to get more I Bonds, but then again, that's a personal choice.
Best Regards - Mel | | Semper Fi
AnEngineer
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Re: What's the catch with I Bonds?

Post by AnEngineer »

Mel Lindauer wrote: Thu Sep 16, 2021 3:46 pm
AnEngineer wrote: Thu Sep 16, 2021 1:49 pm
Mel Lindauer wrote: Thu Sep 16, 2021 1:27 pm
AnEngineer wrote: Thu Sep 16, 2021 7:11 am
Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am

These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
You can get paper I bonds with a MFS return.
Do you have a link to an official reference showing that a coupe filing a joint return can get more than $5k in paper savings bonds? It's my understanding that a couple filing jointly can only get $5k.
I didn't say you can get more than $5k with a MFJ return, I said that you can get I bonds with a MFS return.

I must have missed that. Most couples file MFJ in which case the limit is $5k. Not sure if it's worth the extra effort of going through filing MFS just to get more I Bonds, but then again, that's a personal choice.
I agree, probably not worth the effort (and certainly not changing filing status). I only brought it up because you said you had to file MFJ to get them.
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Re: What's the catch with I Bonds?

Post by AnEngineer »

Mel Lindauer wrote: Thu Sep 16, 2021 3:46 pm I didn't see that in your post that I quoted. If you posted it somewhere else, I must have missed it. ...
? You quoted the entirety of my post below.
AnEngineer wrote: Thu Sep 16, 2021 7:11 am You can get paper I bonds with a MFS return.
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

AnEngineer wrote: Thu Sep 16, 2021 3:56 pm
Mel Lindauer wrote: Thu Sep 16, 2021 3:46 pm I didn't see that in your post that I quoted. If you posted it somewhere else, I must have missed it. ...
? You quoted the entirety of my post below.
AnEngineer wrote: Thu Sep 16, 2021 7:11 am You can get paper I bonds with a MFS return.
My original response quoted flipmode, not you. In this post, he made no mention of MFS. You brought that up after my response to him.
flipmode1246 wrote: ↑Wed Sep 15, 2021 2:43 pm
Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
Best Regards - Mel | | Semper Fi
JBTX
Posts: 11227
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Re: What's the catch with I Bonds?

Post by JBTX »

SnowBog wrote: Wed Sep 15, 2021 12:58 pm
Angst wrote: Wed Sep 15, 2021 11:11 am
cresive wrote: Wed Sep 15, 2021 7:23 am
Buy_N_Hold wrote: Wed Jun 02, 2021 8:51 pm [Snip]... However, for someone in their accumulation phase with 30+ years to retirement, it seems to me that over 10 years one could build a quite substantial position in these bonds. However, another factor that I didn't mention in my original post is the tailwind that most bonds have received from falling interest rates the past 40 years. Since these do not trade on the secondary market, perhaps that makes them less appealing over the full market cycle, as there is only one real source of return, as opposed to two? Just thinking out loud here.
B-n-H,

I would like to second what SnowDog wrote in his response, just prior to your repost. I would also add that any taxes paid on interest earned does NOT include SALT, so they have another relative advantage to savings accounts. Right now, the best online savings rates are about 0.5% and any earnings are subject to federal and state and local taxes. I just bought the limit on I-bonds at 3.5% return and will only have to pay federal taxes on any earnings. [Snip]...
As an aside, I wish that some of the wealthier Bogleheads who can't be bothered with a measly $10,000 investment could just refrain from saying so. I don't think the rest of us need advice as to whether or not a $10,000 chunk-of-change is worth dealing with in our own portfolios.

More importantly, consider the scenario of someone with a "measly" million dollar portfolio, but with only 10% of it in fixed income: In this case, would moving $10,000 from the Total Bond Fund into I Bonds instead be too small an amount to be bothered with? I think not. And even if the entire portfolio were double in size, $10,000 now and another $10,000 in Jan 2022 would similarly be worth considering.
Spot on!

I have to admit, I used to think I/EE Bonds were NOT worth the effort. As a % of my portfolio, the limits felt too small. And we are conditioned to being able to buy as much as we want of pretty much any other asset, that these limits make one think it's not worth their time...

But a few things finally occurred to me... First is I/EE Bonds have unique characteristics that can't be found in any other asset (as a whole), meaning they can add a level of diversification not otherwise available. Second is that over 10 - 30+ years, even at the low limits, one can amass a sizeable amount of I/EE Bonds if they want. Lastly, I realized that viewing limits at % of portfolio wasn't meaningful as a buy and hold investor who's been investing for 20+ years; instead I should be looking at it at % of "new" money to invest in a year, or even more specifically % of new money directed towards fixed income investments. And the so-called low (especially if extended to trusts/etc.) limits pretty much line up with what I would "want" to save in I/EE Bonds in a given year (we make a good living and our AA is 60/40, and still want other diversity so we also add to Muni and TBM, although the bulk of new fixed income is going to I/EE Bonds).

Since then, I've become a strong support of I Bonds for pretty much anyone, and EE Bonds in the 20 year commitment makes sense for their needs. :sharebeer
Yeah it's too small never made any sense to me. No different than IRA or 401k limits. Do it year after year and it eventually adds up.

I've been doing it over a decade, although not always consistently. I can recall at certain points when rates went up a tad and inflation was below 2.0% a lot of people poo poo'd bonds. But the idea is if you are going to do them you do them every year and on average it will significantly beat out banks and money markets, and probably be competitive with bonds.

Now all of a sudden everybody here likes ibonds. It hasn't always been that way.
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Mel Lindauer
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

JBTX wrote: Thu Sep 16, 2021 5:58 pm
SnowBog wrote: Wed Sep 15, 2021 12:58 pm
Angst wrote: Wed Sep 15, 2021 11:11 am
cresive wrote: Wed Sep 15, 2021 7:23 am
Buy_N_Hold wrote: Wed Jun 02, 2021 8:51 pm [Snip]... However, for someone in their accumulation phase with 30+ years to retirement, it seems to me that over 10 years one could build a quite substantial position in these bonds. However, another factor that I didn't mention in my original post is the tailwind that most bonds have received from falling interest rates the past 40 years. Since these do not trade on the secondary market, perhaps that makes them less appealing over the full market cycle, as there is only one real source of return, as opposed to two? Just thinking out loud here.
B-n-H,

I would like to second what SnowDog wrote in his response, just prior to your repost. I would also add that any taxes paid on interest earned does NOT include SALT, so they have another relative advantage to savings accounts. Right now, the best online savings rates are about 0.5% and any earnings are subject to federal and state and local taxes. I just bought the limit on I-bonds at 3.5% return and will only have to pay federal taxes on any earnings. [Snip]...
As an aside, I wish that some of the wealthier Bogleheads who can't be bothered with a measly $10,000 investment could just refrain from saying so. I don't think the rest of us need advice as to whether or not a $10,000 chunk-of-change is worth dealing with in our own portfolios.

More importantly, consider the scenario of someone with a "measly" million dollar portfolio, but with only 10% of it in fixed income: In this case, would moving $10,000 from the Total Bond Fund into I Bonds instead be too small an amount to be bothered with? I think not. And even if the entire portfolio were double in size, $10,000 now and another $10,000 in Jan 2022 would similarly be worth considering.
Spot on!

I have to admit, I used to think I/EE Bonds were NOT worth the effort. As a % of my portfolio, the limits felt too small. And we are conditioned to being able to buy as much as we want of pretty much any other asset, that these limits make one think it's not worth their time...

But a few things finally occurred to me... First is I/EE Bonds have unique characteristics that can't be found in any other asset (as a whole), meaning they can add a level of diversification not otherwise available. Second is that over 10 - 30+ years, even at the low limits, one can amass a sizeable amount of I/EE Bonds if they want. Lastly, I realized that viewing limits at % of portfolio wasn't meaningful as a buy and hold investor who's been investing for 20+ years; instead I should be looking at it at % of "new" money to invest in a year, or even more specifically % of new money directed towards fixed income investments. And the so-called low (especially if extended to trusts/etc.) limits pretty much line up with what I would "want" to save in I/EE Bonds in a given year (we make a good living and our AA is 60/40, and still want other diversity so we also add to Muni and TBM, although the bulk of new fixed income is going to I/EE Bonds).

Since then, I've become a strong support of I Bonds for pretty much anyone, and EE Bonds in the 20 year commitment makes sense for their needs. :sharebeer
Yeah it's too small never made any sense to me. No different than IRA or 401k limits. Do it year after year and it eventually adds up.

I've been doing it over a decade, although not always consistently. I can recall at certain points when rates went up a tad and inflation was below 2.0% a lot of people poo poo'd bonds. But the idea is if you are going to do them you do them every year and on average it will significantly beat out banks and money markets, and probably be competitive with bonds.

Now all of a sudden everybody here likes ibonds. It hasn't always been that way.
Yes, the I Bond and EE Bond annual purchase limits are actually higher than the contribution limits to a TIRA and a Roth. I could never understand why the same folks who max out their TIRA or Roth feel that the Savings Bonds limits aren't worth bothering with.

And Saving Bonds have their own advantages, too. They're also tax deferred, they're free from state and local taxation and they can be used tax-free for qualifying educational expenses. Not a bad deal. And if you do that year after year, it can definitely add up, just like your other contributions and purchases do.
Best Regards - Mel | | Semper Fi
SnowBog
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Re: What's the catch with I Bonds?

Post by SnowBog »

Mel Lindauer wrote: Thu Sep 16, 2021 6:16 pm Yes, the I Bond and EE Bond annual purchase limits are actually higher than the contribution limits to a TIRA and a Roth. I could never understand why the same folks who max out their TIRA or Roth feel that the Savings Bonds limits aren't worth bothering with.

And Saving Bonds have their own advantages, too. They're also tax deferred, they're free from state and local taxation and they can be used tax-free for qualifying educational expenses. Not a bad deal. And if you do that year after year, it can definitely add up, just like your other contributions and purchases do.
Again, as someone who "used" to think that way... It was the inability to just go and buy $50k (or some other arbitrary number) of Savings Bonds at once. In any other account I have - I can freely buy/sell/exchange - up to the amount in that account (or the cash on hand) - of pretty much anything I want. But not with Savings Bonds.

Again, I now accept this was/is a flawed perspective - and one that other than when I found BH and was "cleaning up" my previous investments (or rebalancing) - I don't actually do in practice as a buy-and-hold investor.

Instead, I choose where to direct "new" money - and has been noted - the limits on Savings Bonds are actually greater than those on 401k/IRA/etc. (unless > 50). So viewed from that - IMHO more accurate - perspective - the "low limits" concern is misleading at best.
Arby
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Re: What's the catch with I Bonds?

Post by Arby »

Angst wrote: Thu Sep 16, 2021 1:30 pm
Arby wrote: Thu Sep 16, 2021 12:21 pmIf I could buy I Bonds through the Fidelity platform I would max it out in a heartbeat. But I live overseas with no intention of returning stateside. I am also pretty sure my portfolio is in the bottom quintile of Boglehead's portfolios so the total dollar amount of the juiced up return would be quite meaningful to me.. But being cutoff from my money with no easy solution due to a tech problem with the website is a very real concern to me. It's not worth my time and certainly not worth the stress.
There are definitely situations that can end up causing the dreaded medallion guarantee to be required. But IF you really wish you could have I Bonds, have you considered at least risking the bare minimum $25 investment and set up an account to try it out? I do believe that the lockouts come about due to factors that one can avoid if you're extremely careful, particularly, once you've already set up the account and have successfully bought I Bonds, even with just with $25.

Below are the things I would absolutely never do in YOUR unique situation if I were going to try to maintain a TD account:
- Once set up, don't ever try to add/change/modify your TD associated bank account info in any way
- Don't try to add/modify any account ownership/beneficiary or email info in any way after it's set up
- NEVER incorrectly enter your password multiple times and get locked out
- In your web browser, NEVER use its "back-page" button or the "Ctrl-arrow" back-page keystrokes

I'm not saying you don't have an excellent reason for staying away completely from TD, but you could consider this - it would only cost (risking) $25 to gain useful first-hand experience. .
Thanks for your thoughtful reply. :happy

If I did by IBonds I would certainly start with a $25 purchase and I guess all would go well and get comfortable with the website. But there is a non zero probability that at some point in the future that TD could do something such as requiring two factor authentication but not accept overseas phone numbers. Or perhaps reject foreign IP addresses.

Even if nothing ever went wrong, I'd still be worrying about it so I will most probably pass.

The $25 start does seem like an excellent idea for all new users who have doubts about the website.
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ApeAttack
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Re: What's the catch with I Bonds?

Post by ApeAttack »

Arby wrote: Fri Sep 17, 2021 12:43 pm
Angst wrote: Thu Sep 16, 2021 1:30 pm
Arby wrote: Thu Sep 16, 2021 12:21 pmIf I could buy I Bonds through the Fidelity platform I would max it out in a heartbeat. But I live overseas with no intention of returning stateside. I am also pretty sure my portfolio is in the bottom quintile of Boglehead's portfolios so the total dollar amount of the juiced up return would be quite meaningful to me.. But being cutoff from my money with no easy solution due to a tech problem with the website is a very real concern to me. It's not worth my time and certainly not worth the stress.
There are definitely situations that can end up causing the dreaded medallion guarantee to be required. But IF you really wish you could have I Bonds, have you considered at least risking the bare minimum $25 investment and set up an account to try it out? I do believe that the lockouts come about due to factors that one can avoid if you're extremely careful, particularly, once you've already set up the account and have successfully bought I Bonds, even with just with $25.

Below are the things I would absolutely never do in YOUR unique situation if I were going to try to maintain a TD account:
- Once set up, don't ever try to add/change/modify your TD associated bank account info in any way
- Don't try to add/modify any account ownership/beneficiary or email info in any way after it's set up
- NEVER incorrectly enter your password multiple times and get locked out
- In your web browser, NEVER use its "back-page" button or the "Ctrl-arrow" back-page keystrokes

I'm not saying you don't have an excellent reason for staying away completely from TD, but you could consider this - it would only cost (risking) $25 to gain useful first-hand experience. .
Thanks for your thoughtful reply. :happy

If I did by IBonds I would certainly start with a $25 purchase and I guess all would go well and get comfortable with the website. But there is a non zero probability that at some point in the future that TD could do something such as requiring two factor authentication but not accept overseas phone numbers. Or perhaps reject foreign IP addresses.

Even if nothing ever went wrong, I'd still be worrying about it so I will most probably pass.

The $25 start does seem like an excellent idea for all new users who have doubts about the website.
I started with a $25 purchase to make sure I understood the entire process. It took about two days from when I created the account until I felt confident my $25 I-Bond was purchased correctly.

The TD website isn't too bad once you are familiar with it. Now it only takes me 1-2 minutes to make purchases.

When you log out of TD, you are asked to rate the website, then can see the survey results from the past 30 days. About 90%+ rate the website as excellent or good, with just a few percent rating it poorly. I think a lot of BHers exaggerate the issues with the TD website.
May all your index funds gain +0.5% today.
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Mel Lindauer
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

IMO, the risk is simply too great. As much as I love I Bonds, I'd pass if I were in your situation.
Best Regards - Mel | | Semper Fi
Blue456
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Re: What's the catch with I Bonds?

Post by Blue456 »

Angst wrote: Thu Sep 16, 2021 1:30 pm

Below are the things I would absolutely never do in YOUR unique situation if I were going to try to maintain a TD account:
- Once set up, don't ever try to add/change/modify your TD associated bank account info in any way
- Don't try to add/modify any account ownership/beneficiary or email info in any way after it's set up
- NEVER incorrectly enter your password multiple times and get locked out
- In your web browser, NEVER use its "back-page" button or the "Ctrl-arrow" back-page keystrokes

Why? I recently changed phone number, email address, home address and security questions without any issues. The only thing that stayed the same was original bank account.
ivk5
Posts: 1348
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Re: What's the catch with I Bonds?

Post by ivk5 »

Blue456 wrote: Fri Sep 17, 2021 1:45 pm
Angst wrote: Thu Sep 16, 2021 1:30 pm

Below are the things I would absolutely never do in YOUR unique situation if I were going to try to maintain a TD account:
- Once set up, don't ever try to add/change/modify your TD associated bank account info in any way
- Don't try to add/modify any account ownership/beneficiary or email info in any way after it's set up
- NEVER incorrectly enter your password multiple times and get locked out
- In your web browser, NEVER use its "back-page" button or the "Ctrl-arrow" back-page keystrokes

Why? I recently changed phone number, email address, home address and security questions without any issues. The only thing that stayed the same was original bank account.
For expats, past performance may not be indicative of future results. :wink:
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AnnetteLouisan
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Re: What's the catch with I Bonds?

Post by AnnetteLouisan »

mmcmonster wrote: Thu Jun 03, 2021 6:01 am
tibbitts wrote: Thu Jun 03, 2021 12:19 am[...] Remember that not only do you have to understand I-bonds, you have to explain them to your beneficiaries, so they'll know what to do with them should the need arise. It'll be yet another account for them to deal with. Also, if you defer interest, make sure you're prepared for the tax hit down the road, and how that timing will fit with other events (RMDs, Social Security, etc.)
Good point.

Cons:
*Having to explain to heirs.
*Dealing with TreasuryDirect. Cannot trade on secondary market.
*$10k per person per year limit (a little more if through a trust or using federal tax rebate to buy)
*3 month interest penalty if selling within 5 years.
*Cannot sell in the first year.
*Requires Medallion signature to initiate.

Pros:
*Tax deferred. An excellent way to increase tax deferred space.
*Good/Competitive coupon rate.

For those who start buying fairly early in their investing careers, it's a great option. For those late to the game, the purchase limits are problematic.
The gains are tax deferred, right? Not the contribution?
BrokerageZelda
Posts: 463
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Re: What's the catch with I Bonds?

Post by BrokerageZelda »

AnnetteLouisan wrote: Sun Sep 19, 2021 11:11 am
mmcmonster wrote: Thu Jun 03, 2021 6:01 am
tibbitts wrote: Thu Jun 03, 2021 12:19 am[...] Remember that not only do you have to understand I-bonds, you have to explain them to your beneficiaries, so they'll know what to do with them should the need arise. It'll be yet another account for them to deal with. Also, if you defer interest, make sure you're prepared for the tax hit down the road, and how that timing will fit with other events (RMDs, Social Security, etc.)
Good point.

Cons:
*Having to explain to heirs.
*Dealing with TreasuryDirect. Cannot trade on secondary market.
*$10k per person per year limit (a little more if through a trust or using federal tax rebate to buy)
*3 month interest penalty if selling within 5 years.
*Cannot sell in the first year.
*Requires Medallion signature to initiate.

Pros:
*Tax deferred. An excellent way to increase tax deferred space.
*Good/Competitive coupon rate.

For those who start buying fairly early in their investing careers, it's a great option. For those late to the game, the purchase limits are problematic.
The gains are tax deferred, right? Not the contribution?
That's right. Like a non-deductible Traditional IRA, it's funded with after-tax dollars and only the gains are taxed on withdrawal (pro-rated for partial redemptions, and state tax exempt).
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AnnetteLouisan
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Re: What's the catch with I Bonds?

Post by AnnetteLouisan »

BrokerageZelda wrote: Sun Sep 19, 2021 12:09 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 11:11 am
mmcmonster wrote: Thu Jun 03, 2021 6:01 am
tibbitts wrote: Thu Jun 03, 2021 12:19 am[...] Remember that not only do you have to understand I-bonds, you have to explain them to your beneficiaries, so they'll know what to do with them should the need arise. It'll be yet another account for them to deal with. Also, if you defer interest, make sure you're prepared for the tax hit down the road, and how that timing will fit with other events (RMDs, Social Security, etc.)
Good point.

Cons:
*Having to explain to heirs.
*Dealing with TreasuryDirect. Cannot trade on secondary market.
*$10k per person per year limit (a little more if through a trust or using federal tax rebate to buy)
*3 month interest penalty if selling within 5 years.
*Cannot sell in the first year.
*Requires Medallion signature to initiate.

Pros:
*Tax deferred. An excellent way to increase tax deferred space.
*Good/Competitive coupon rate.

For those who start buying fairly early in their investing careers, it's a great option. For those late to the game, the purchase limits are problematic.
The gains are tax deferred, right? Not the contribution?
That's right. Like a non-deductible Traditional IRA, it's funded with after-tax dollars and only the gains are taxed on withdrawal (pro-rated for partial redemptions, and state tax exempt).
Thank you!
Da5id
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Re: What's the catch with I Bonds?

Post by Da5id »

BrokerageZelda wrote: Sun Sep 19, 2021 12:09 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 11:11 am
mmcmonster wrote: Thu Jun 03, 2021 6:01 am
tibbitts wrote: Thu Jun 03, 2021 12:19 am[...] Remember that not only do you have to understand I-bonds, you have to explain them to your beneficiaries, so they'll know what to do with them should the need arise. It'll be yet another account for them to deal with. Also, if you defer interest, make sure you're prepared for the tax hit down the road, and how that timing will fit with other events (RMDs, Social Security, etc.)
Good point.

Cons:
*Having to explain to heirs.
*Dealing with TreasuryDirect. Cannot trade on secondary market.
*$10k per person per year limit (a little more if through a trust or using federal tax rebate to buy)
*3 month interest penalty if selling within 5 years.
*Cannot sell in the first year.
*Requires Medallion signature to initiate.

Pros:
*Tax deferred. An excellent way to increase tax deferred space.
*Good/Competitive coupon rate.

For those who start buying fairly early in their investing careers, it's a great option. For those late to the game, the purchase limits are problematic.
The gains are tax deferred, right? Not the contribution?
That's right. Like a non-deductible Traditional IRA, it's funded with after-tax dollars and only the gains are taxed on withdrawal (pro-rated for partial redemptions, and state tax exempt).
Also worth noting that if the I-bond proceeds are used for a qualified educational expense the interest may be excluded from gross income. See https://www.treasurydirect.gov/indiv/pl ... cation.htm. So under some circumstances they behave as if they were in a Roth.
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anon_investor
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Re: What's the catch with I Bonds?

Post by anon_investor »

Da5id wrote: Sun Sep 19, 2021 2:16 pm
BrokerageZelda wrote: Sun Sep 19, 2021 12:09 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 11:11 am
mmcmonster wrote: Thu Jun 03, 2021 6:01 am
tibbitts wrote: Thu Jun 03, 2021 12:19 am[...] Remember that not only do you have to understand I-bonds, you have to explain them to your beneficiaries, so they'll know what to do with them should the need arise. It'll be yet another account for them to deal with. Also, if you defer interest, make sure you're prepared for the tax hit down the road, and how that timing will fit with other events (RMDs, Social Security, etc.)
Good point.

Cons:
*Having to explain to heirs.
*Dealing with TreasuryDirect. Cannot trade on secondary market.
*$10k per person per year limit (a little more if through a trust or using federal tax rebate to buy)
*3 month interest penalty if selling within 5 years.
*Cannot sell in the first year.
*Requires Medallion signature to initiate.

Pros:
*Tax deferred. An excellent way to increase tax deferred space.
*Good/Competitive coupon rate.

For those who start buying fairly early in their investing careers, it's a great option. For those late to the game, the purchase limits are problematic.
The gains are tax deferred, right? Not the contribution?
That's right. Like a non-deductible Traditional IRA, it's funded with after-tax dollars and only the gains are taxed on withdrawal (pro-rated for partial redemptions, and state tax exempt).
Also worth noting that if the I-bond proceeds are used for a qualified educational expense the interest may be excluded from gross income. See https://www.treasurydirect.gov/indiv/pl ... cation.htm. So under some circumstances they behave as if they were in a Roth.
Pretty good deal for previously high income FIRE folks.
Angst
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Re: What's the catch with I Bonds?

Post by Angst »

Arby wrote: Fri Sep 17, 2021 12:43 pm
Angst wrote: Thu Sep 16, 2021 1:30 pm [Snip] ...
Arby wrote: Thu Sep 16, 2021 12:21 pm [Snip] ...
Thanks for your thoughtful reply. :happy

If I did by IBonds I would certainly start with a $25 purchase and I guess all would go well and get comfortable with the website. But there is a non zero probability that at some point in the future that TD could do something such as requiring two factor authentication but not accept overseas phone numbers. Or perhaps reject foreign IP addresses.

Even if nothing ever went wrong, I'd still be worrying about it so I will most probably pass.

The $25 start does seem like an excellent idea for all new users who have doubts about the website.
You're welcome, and I can't disagree with your thinking, given your situation. So many unknowns - the 2FA scenario is a good one, so to speak. I'd be pretty frustrated too!
:sharebeer
jmch1990
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Re: What's the catch with I Bonds?

Post by jmch1990 »

Angst wrote: Thu Sep 16, 2021 6:18 am
ApeAttack wrote: Wed Sep 15, 2021 10:40 pm
kaseg wrote: Wed Sep 15, 2021 10:04 pm
emlowe wrote: Wed Sep 15, 2021 6:33 pm 3.54% inflation rate was good, but the August inflation rate is in, and now I Bonds now looking like a variable rate of 6.5% for six months on Nov.1
Assuming this is correct, this interest would be paid on any I Bonds purchased through the end of April 2022 for 6 months starting on the date they were bought correct? If so, its going to be hard to pass up next year.
Yes, you would receive 6.5% for six months even if you bought on April 30, 2022.

I also like the 3.54%, so I will be maxing out my limit for this year at the end of September. The 6.5% will kick in during March for this batch of I-Bonds.
Of course we won't know the rate until October, but any I Bond purchased simply in any of the months of November thru April in any year, will begin paying the new November 2021 inflation rate (6.5%?) in that month (or if purchased in May thru Oct, then 6 months later), plus the fixed rate that came with the I Bond in the year/month it was purchased, so that means "at least 6.5%". Unsurprisingly, the fixed rate has been mired at 0% for I Bonds bought since May 2020: http://eyebonds.info/ibonds/rates.html

Anyone interested in I Bonds will likely appreciate #Cruncher's entire website:
http://eyebonds.info
I am considering IBonds but am a bit confused about the timing and hoping someone here can help me understand.
If I buy IBonds on October 31, I would earn 3.54% from November-April and then (presumably something around) 6.5% from April-November of next year, essentially locking in a ~5% composite rate for the next year (again with the above presumption).
But if I buy them on November 1, I would earn (the presumably something around) 6.5% from November-April and then whatever the new number is from April-November of next year, correct? Do I understand this properly?
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FoundingFather
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Re: What's the catch with I Bonds?

Post by FoundingFather »

jmch1990 wrote: Sun Sep 19, 2021 4:49 pm
I am considering IBonds but am a bit confused about the timing and hoping someone here can help me understand.
If I buy IBonds on October 31, I would earn 3.54% from November-April and then (presumably something around) 6.5% from April-November of next year, essentially locking in a ~5% composite rate for the next year (again with the above presumption).
But if I buy them on November 1, I would earn (the presumably something around) 6.5% from November-April and then whatever the new number is from April-November of next year, correct? Do I understand this properly?
That is correct. You get whatever the current rate is for the first six months after you buy the bond. The 6 months of interest is based on when you buy it, not when the rate changes occur.

Founding Father
"I do not think myself equal to the Command I am honored with." -George Washington (excerpt from Journals of the Continental Congress, 16 June 1775)
mrk
Posts: 25
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Re: What's the catch with I Bonds?

Post by mrk »

jmch1990 wrote: Sun Sep 19, 2021 4:49 pm I am considering IBonds but am a bit confused about the timing and hoping someone here can help me understand.
If I buy IBonds on October 31, I would earn 3.54% from November-April and then (presumably something around) 6.5% from April-November of next year, essentially locking in a ~5% composite rate for the next year (again with the above presumption).
But if I buy them on November 1, I would earn (the presumably something around) 6.5% from November-April and then whatever the new number is from April-November of next year, correct? Do I understand this properly?
This is correct except for one timing issue:

A purchase on October 31 is equivalent to a purchase on October 1.

If you purchase on October 31, you will earn 3.54% for the six months beginning October 1 (October 1 to March 31) and 6.?% for the six months following (April 1 to September 30). Your rate will reset October 1 and April 1 each year.
smectym
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Re: What's the catch with I Bonds?

Post by smectym »

Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
>>”…(unless you have a trust, and then the trust can get another $10K).

Mel is correct, but I’ll add that an LLC also qualifies. The LLC tax ID number, or EIN, functions just like a an individual taxpayer’s SSN to qualify for a separate Treasury Direct account. We have used one when our available SSN’s were maxed out
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Raspberry-503
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Re: What's the catch with I Bonds?

Post by Raspberry-503 »

Speaking of date, remind me, the annual limit is per calendar year right? So if I bought my limit in May this year, I can buy again in January, don't have to wait till May right?
BrokerageZelda
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Re: What's the catch with I Bonds?

Post by BrokerageZelda »

Raspberry-503 wrote: Sun Sep 19, 2021 9:41 pm Speaking of date, remind me, the annual limit is per calendar year right? So if I bought my limit in May this year, I can buy again in January, don't have to wait till May right?
Yes, the yearly limit resets in January for everyone.
EnjoyIt
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Re: What's the catch with I Bonds?

Post by EnjoyIt »

smectym wrote: Sun Sep 19, 2021 8:30 pm
Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
>>”…(unless you have a trust, and then the trust can get another $10K).

Mel is correct, but I’ll add that an LLC also qualifies. The LLC tax ID number, or EIN, functions just like a an individual taxpayer’s SSN to qualify for a separate Treasury Direct account. We have used one when our available SSN’s were maxed out
I have 2 separate EIN numbers. Does that mean between my spouse and myself, plus the two corporations I can deposit $40k?

Is there a way to move the bonds out of the EIN accounts and into my personal account or must I hold it in the EIN accounts till redeemed?
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
namajones
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Re: What's the catch with I Bonds?

Post by namajones »

JoMoney wrote: Wed Jun 02, 2021 9:48 pm I like I Bonds. The current interest rate is better than anything comparable, and there's no market or interest rate risk. If you take the money out before 5 years you lose 3 months of interest. Other than that, the big "catch" as far as I can tell is dealing with Treasury Direct. I've had them lock me out of my account for simply trying to add another bank to the account to transfer to/from, and it required sending in a form with Medallion Signature Guarantee (a bit of a pain to get) to get the account unlocked. It seems they've changed the procedure to require a form with signature guarantee to add a bank account now, which is still a pain, but better to know before hand and not have them lock the account :annoyed
I will say about Treasury Direct that their help line (844-284-2676) is fantastic. I deal with other Treasury systems in my work, and their help people are fantastic there, as well. In fact, Treasury seems to employ the most knowledgeable, no-nonsense people on their help lines that I ever dealt with, period.

The commercial sector could learn a thing or three about how to run a help line by studying whatever it is that Treasury is doing to keep the quality high.
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HueyLD
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Re: What's the catch with I Bonds?

Post by HueyLD »

EnjoyIt wrote: Sun Sep 19, 2021 10:28 pm I have 2 separate EIN numbers. Does that mean between my spouse and myself, plus the two corporations I can deposit $40k?

Is there a way to move the bonds out of the EIN accounts and into my personal account or must I hold it in the EIN accounts till redeemed?
Transferring I bonds from a corporate account into a personal account is almost certainly a taxable event.

I suggest you call TD’s excellent customer service number at 844-284-2676 and let us know what they tell you.
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krafty81
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Re: What's the catch with I Bonds?

Post by krafty81 »

Mel Lindauer wrote: Thu Sep 16, 2021 12:48 am
flipmode1246 wrote: Wed Sep 15, 2021 2:43 pm Assuming one is married, you can put in $30,000 a year ($10,000 each plus 2 times the $5,000 tax refund), which is actually higher than the < 50 yr old 401(k) limit of $19,500 a year. So as a percentage of new money, assuming both spouses work and contribute the full $19,500, and both do a back-door Roth IRA at $6,000 each, you can potentially invest > 1/3 of your new money invested (total of 401k plus Roth plus i-bonds) for the year in i-bonds ($30,000 out of $80,000).

For next year, the math works out to $30,000 out of $82,000 invested (401k limit projected to go to $20,500).
These numbers are incorrect. It's $10K per SS#, so $20K per couple via TD (unless you have a trust, and then the trust can get another $10K). Also, the couple can only get $5K in paper bonds via a tax return, since it must be MFJ.

So that's $25k per couple, unless they have a trust, in which case that would raise the limit to $35K per couple which is still nothing to sneeze at, as you're trying to point out.
I have established a trust but how does one buy an I Bond with a Trust? I have a 10K one and my wife has a 10K one.
invester123
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Re: What's the catch with I Bonds?

Post by invester123 »

Is there any scenario in which putting $ in a savings account would be better than buying I Bonds? What if interest rates drop to near 0?
Da5id
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Re: What's the catch with I Bonds?

Post by Da5id »

invester123 wrote: Tue Sep 28, 2021 6:40 pm Is there any scenario in which putting $ in a savings account would be better than buying I Bonds? What if interest rates drop to near 0?
Pretty much only if you need the money within the one year lockup period.

Other than that case if an I-bond is ever worse than savings accounts you can always liquidate the bond.
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