I-Bonds?

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Mel Lindauer
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Re: I-Bonds?

Post by Mel Lindauer » Thu Dec 07, 2017 10:48 pm

anoop wrote:
Thu Dec 07, 2017 10:34 pm
I-bonds are the best investment ever.

Read this blog to get more info:
https://tipswatch.com/tracking-inflation-and-i-bonds/
(see the bottom of the post on why they are great investment.)

I wish it was not limited to only $10K per year. And I wish my 401k offer TIPS (even a fund).
In the "good old days" when you could get fixed rates of 3.0 to 3.6%, you could buy $30,000 per SS#. AND, you could use a credit card to make your purchases.

Then they took the punch bowl away and steadily lowered the fixed rate as well as the purchase limits. Here's a Forbes column I did some time back, speculating that the Treasury was intentionally minimizing or killing off the Savings Bond program.

https://www.forbes.com/sites/theboglehe ... dde2f02a8d
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Re: I-Bonds?

Post by anoop » Thu Dec 07, 2017 10:51 pm

Mel Lindauer wrote:
Thu Dec 07, 2017 10:48 pm
In the "good old days" when you could get fixed rates of 3.0 to 3.6%, you could buy $30,000 per SS#. AND, you could use a credit card to make your purchases.
Yes indeed. Unfortunately, I caught on to these very late, ca. 2001, and I didn't even take advantage of the max purchase because I wasn't earning much back then. By the time my earnings improved they had lowered the limits and the interest rate wasn't all that attractive. But even with the not-so-great fixed rate, I regard it as the best investment because of tax deferral, inflation protection, and near 100% safety.

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Re: I-Bonds?

Post by IngognitoUSA » Wed Jan 24, 2018 5:34 pm

I purchased bonds for self and spouse for many years. I believe joint ownership but not sure. How can I tell is the same bond is appearing in my login and her login, or are they separate bonds purchased on same day, which I usually do.

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Re: I-Bonds?

Post by Darth Xanadu » Thu Feb 01, 2018 11:32 pm

Can a negative inflation rate eat into the fixed rate? But with a total floor of 0%?
Last edited by Darth Xanadu on Fri Feb 02, 2018 10:59 am, edited 1 time in total.
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Re: I-Bonds?

Post by CULater » Fri Feb 02, 2018 10:33 am

Here's why I like them:
I Bonds are the only super-safe investment that can guarantee to match inflation while providing tax-deferred earnings, rock-solid deflation protection and a flexible maturity. An I Bond investment can't lose money. Here is what the Treasury says:

They are U.S. Treasury securities backed by the U.S. Government. I Bonds even protect you from the effects of severe deflation - the earnings rate can't go below zero and the redemption value of your I Bonds can't decline.
https://seekingalpha.com/article/403515 ... guide-2017

TIPS have the disadvantage that if you are forced to liquidate before maturity, you might get killed on capital loss; just remember what happened to them in 2008. The same applies to TIPS fund share values. You can liquidate I-Bonds at any time and not lose money. Another disadvantage of TIPS in an IRA is that you either have to keep a cash reserved to pay your RMDs or you have to cash some of them out to do that, so it sort of messes up your TIPS ladder. In my mind, I'd much rather have TIPS in a Roth IRA only. So, I'm bagging my TIPS in my tIRA and adding to my I-Bonds. But you have to start early accumulating I-Bonds with the puny annual purchase limit.
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Re: I-Bonds?

Post by Mel Lindauer » Fri Feb 02, 2018 11:02 am

Darth Xanadu wrote:
Thu Feb 01, 2018 11:32 pm
Can a negative inflation rate eat into the fixed rate? But with a total floor of 0%?
Since the I Bond composite rate (fixed rate plus inflation) can never go below 0%, the greater the rate of DEflation, the greater the REAL return will be on I Bonds.
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Re: I-Bonds?

Post by flamesabers » Fri Feb 02, 2018 11:23 am

Darth Xanadu wrote:
Thu Feb 01, 2018 11:32 pm
Can a negative inflation rate eat into the fixed rate? But with a total floor of 0%?
Yes, this can happen. If you look at May 2009 on this chart, you'll see that all outstanding I-Bonds at that time earned a 0% interest rate due to the negative variable rate.

https://www.treasurydirect.gov/indiv/re ... eChart.pdf

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Re: I-Bonds?

Post by CULater » Fri Feb 02, 2018 1:29 pm

So, the beauty of those eye-bonds is that they offer BOTH inflation and deflation protection??? :D
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Re: I-Bonds?

Post by Darth Xanadu » Fri Feb 02, 2018 5:09 pm

I may start buying some; should I wait until the new rates are announced in April/May?
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Re: I-Bonds?

Post by DaftInvestor » Fri Feb 02, 2018 5:30 pm

CULater wrote:
Fri Feb 02, 2018 1:29 pm
So, the beauty of those eye-bonds is that they offer BOTH inflation and deflation protection??? :D
The other beauty for me is they also extend my tax-deferred space.

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Re: I-Bonds?

Post by Mel Lindauer » Fri Feb 02, 2018 8:14 pm

DaftInvestor wrote:
Fri Feb 02, 2018 5:30 pm
CULater wrote:
Fri Feb 02, 2018 1:29 pm
So, the beauty of those eye-bonds is that they offer BOTH inflation and deflation protection??? :D
The other beauty for me is they also extend my tax-deferred space.
And a couple of more benefits:
1. They're free from state and local taxation, and
2. They can be used, tax-free, for qualifying educational expenses.
3. Since they're tax-deferred and good for 30 years, they can be used for tax shifting, deferring taxes until one is in a lower tax bracket after retirement or when unemployed.
Best Regards - Mel | | Semper Fi

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Re: I-Bonds?

Post by CULater » Fri Feb 02, 2018 9:13 pm

Mel Lindauer wrote:
Fri Feb 02, 2018 8:14 pm
DaftInvestor wrote:
Fri Feb 02, 2018 5:30 pm
CULater wrote:
Fri Feb 02, 2018 1:29 pm
So, the beauty of those eye-bonds is that they offer BOTH inflation and deflation protection??? :D
The other beauty for me is they also extend my tax-deferred space.
And a couple of more benefits:
1. They're free from state and local taxation, and
2. They can be used, tax-free, for qualifying educational expenses.
3. Since they're tax-deferred and good for 30 years, they can be used for tax shifting, deferring taxes until one is in a lower tax bracket after retirement or when unemployed.
My gosh, I'm in love with a.... BOND!
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: I-Bonds?

Post by theac » Sun Feb 11, 2018 4:01 am

Darth Xanadu wrote:
Fri Feb 02, 2018 5:09 pm
I may start buying some; should I wait until the new rates are announced in April/May?
Yes, I'd also like to hear an answer to that.

Since the fixed rate went up a little in Nov (.10% I believe?) after being at 0%, would it better to wait and see if they raise the fixed rate again in May 2018 and buy the full $10k, or just buy $5k now and the other $5k in May?

Or since rates seem to be on the rise in general (such as 10 yr Fed), maybe a better option is to wait til May and buy $5k, then the other $5k in Nov 2018?
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha

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Re: I-Bonds?

Post by anoop » Sun Feb 11, 2018 5:49 am

Here you go.
https://tipswatch.com/2018/01/09/i-bond ... -for-2018/

Just check back at the dates mentioned to see his recommendation.

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Re: I-Bonds?

Post by CDub » Sun Feb 11, 2018 6:56 am

anoop wrote:
Sun Feb 11, 2018 5:49 am
Here you go.
https://tipswatch.com/2018/01/09/i-bond ... -for-2018/

Just check back at the dates mentioned to see his recommendation.

In that article he says, "Don’t bother buying I Bonds as a short-term investment. You can do better with one-year, best-in-nation bank CDs."

From what I can tell, i-bonds have a .5% better return than a 1yr CD (2.5% vs ~2%). Am I missing something?

EDIT: Thought about it some more, forgot that you lose the last 3months of interest in an I-Bond if redeemed in <5 years. That would make 2% slightly better than 2.5%.

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Re: I-Bonds?

Post by Clever_Username » Sun Feb 11, 2018 3:44 pm

iBonds are amazing. I started buying in my early 30s (I'm mid-30s now). If I have to redeem them when I'm in my early 60s (due to the 30 year limit), well, that's likely a low tax year for me (I anticipate being at least semi-retired by then), and if it isn't, oh well. For all the time between purchase and redemption, they serve as an excellent tier of an emergency fund. I keep maybe three months' expenses in various cash, but my job is reasonably secure anyway.

They're my second tier and part of the overall allocation that, taken as a whole, might appear to outsiders as too conservative for many (I'm at approx age - 4 in bonds, including these). At the moment, I have over seven months' expenses in iBonds and haven't made the purchase for 2018 yet. When I do, I will have almost ten months' expenses in iBonds (although some won't be liquid yet if the emergency happens immediately after purchase I suppose).

Are they possibly a net loss due to being taxed on redemption, including interest-related gains? Maybe. But I'm more and more into the belief that one's portfolio isn't so much stocks and bonds as stocks and conservative investments, and iBonds fit the latter category. If you don't like calling them bonds, call them inflation-indexed cash, which they pretty much are.

They also serve to sort-of kind-of expand my tax-advantaged space. Mostly they have a weak tax advantage: I buy them with post-tax money but the gains are taxed, but not until I redeem them, which again I anticipate being in low-tax years, at least for any bought in my 30s. Maybe my RMDs will change the low-tax nature when I have to redeem the ones I buy in my 40s, but maybe that just means I have a year of high tax on the redemption but use that to pay tax to convert more pre-tax retirement to Roth to reduce future RMDs. Who knows.

Long story short (too late), I think they're great, especially since I max out tax-advantaged space and have more to put somewhere.
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Re: I-Bonds?

Post by Silence Dogood » Tue Feb 13, 2018 1:19 pm

Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?

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Re: I-Bonds?

Post by anoop » Tue Feb 13, 2018 1:27 pm

Silence Dogood wrote:
Tue Feb 13, 2018 1:19 pm
Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?
IMO it does not. It can go up or down and even if it goes up it won't be by very much--maybe the treasury will humor us by going from 0.1 to 0.2%. :)

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Re: I-Bonds?

Post by Atgard » Tue Feb 13, 2018 1:39 pm

Silence Dogood wrote:
Tue Feb 13, 2018 1:19 pm
Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?
Yeah, I like to overthink this too, but there's about a 33% chance it will be 0.0%, 33% chance it will stay at 0.1%, and 33% chance it will be 0.2%. Either way, a rounding error, in the grand scheme of things. So I wouldn't sweat it. (Even though I do.) But I definitely wouldn't delay filing a tax return trying to guess the rate (which could go down instead of up).

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Re: I-Bonds?

Post by Silence Dogood » Tue Feb 13, 2018 1:41 pm

anoop wrote:
Tue Feb 13, 2018 1:27 pm
Silence Dogood wrote:
Tue Feb 13, 2018 1:19 pm
Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?
IMO it does not. It can go up or down and even if it goes up it won't be by very much--maybe the treasury will humor us by going from 0.1 to 0.2%. :)

Thanks for the feedback. I will probably not wait.

I know that rates have been going up though so I'm wondering if there is any chance that the fixed rate will go up significantly. In November 2008 the fixed rate was set at 0.7% and in November 2007 the fixed rate was set at 1.2% (I know the Fed funds rate was much higher then).

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Re: I-Bonds?

Post by Buffetologist » Tue Feb 13, 2018 1:54 pm

So it seems to me that because I-bonds must be taxable, that the returns are forced to lag inflation because of the tax. Over 30 years, that can lag inflation by a lot!

On the other hand, I can hold TIPS index funds in my 401K where the return matches inflation where I only buy when 5 year tips show a real rate of return that exceeds the minimal expense ratio. While these get taxed eventually, the tax rate applies to the whole thing rather than the profit. In terms of return, these funds appear to be a better inflation hedge.

Can someone critique this thinking?

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Re: I-Bonds?

Post by anoop » Tue Feb 13, 2018 2:06 pm

Silence Dogood wrote:
Tue Feb 13, 2018 1:41 pm
anoop wrote:
Tue Feb 13, 2018 1:27 pm
Silence Dogood wrote:
Tue Feb 13, 2018 1:19 pm
Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?
IMO it does not. It can go up or down and even if it goes up it won't be by very much--maybe the treasury will humor us by going from 0.1 to 0.2%. :)

Thanks for the feedback. I will probably not wait.

I know that rates have been going up though so I'm wondering if there is any chance that the fixed rate will go up significantly. In November 2008 the fixed rate was set at 0.7% and in November 2007 the fixed rate was set at 1.2% (I know the Fed funds rate was much higher then).
https://seekingalpha.com/article/413617 ... guide-2018
The U.S. Treasury doesn't disclose how it determines the I Bond's fixed rate, so it's up to 'seers' like me to make guesses. I accurately predicted on October 24 that the fixed rate could rise from 0.0% to 0.1% on November 1. That 'prediction' was based on comparing the spread between the I Bond's fixed rate and the 5- and 10-year TIPS real yields.
..
If the Treasury were setting a new fixed rate today, I'd guess it would settle on 0.1%, but 0.2% wouldn't be a surprise. But again, a lot can happen before the May 1 reset.
There's much more information in the article.

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Re: I-Bonds?

Post by asif408 » Tue Feb 13, 2018 2:55 pm

Buffetologist wrote:
Tue Feb 13, 2018 1:54 pm
So it seems to me that because I-bonds must be taxable, that the returns are forced to lag inflation because of the tax. Over 30 years, that can lag inflation by a lot!

On the other hand, I can hold TIPS index funds in my 401K where the return matches inflation where I only buy when 5 year tips show a real rate of return that exceeds the minimal expense ratio. While these get taxed eventually, the tax rate applies to the whole thing rather than the profit. In terms of return, these funds appear to be a better inflation hedge.

Can someone critique this thinking?
I'm not sure if I see how they are dramatically different. Assuming you are not selling either one, I-bonds are tax deferred the same way TIPS in an IRA would be. It just depends on when you sell how the tax treatment works out.

TIPS funds, as you mentioned, also have an ER, which I-bonds don't have. You could own individual TIPS to avoid that, but then you have to re-invest, and if the interest is not high enough you may not have enough to reinvest. With I-bonds, there is no need to worry about reinvestment, it is essentially done for you. And with bonds, over long holding periods, the reinvestment of interest accounts for a majority of the return.

The other thing is that it isn't clear which will be the better inflation hedge: they are just slightly different. Since I-bond rates are adjusted every 6 months, vs. every month with TIPS, there may be some differences in the final result depending on how volatile inflation and/or deflation is. I'd own both.

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Re: I-Bonds?

Post by Silence Dogood » Tue Feb 13, 2018 6:17 pm

anoop wrote:
Tue Feb 13, 2018 2:06 pm
Silence Dogood wrote:
Tue Feb 13, 2018 1:41 pm
anoop wrote:
Tue Feb 13, 2018 1:27 pm
Silence Dogood wrote:
Tue Feb 13, 2018 1:19 pm
Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?
IMO it does not. It can go up or down and even if it goes up it won't be by very much--maybe the treasury will humor us by going from 0.1 to 0.2%. :)

Thanks for the feedback. I will probably not wait.

I know that rates have been going up though so I'm wondering if there is any chance that the fixed rate will go up significantly. In November 2008 the fixed rate was set at 0.7% and in November 2007 the fixed rate was set at 1.2% (I know the Fed funds rate was much higher then).
https://seekingalpha.com/article/413617 ... guide-2018
The U.S. Treasury doesn't disclose how it determines the I Bond's fixed rate, so it's up to 'seers' like me to make guesses. I accurately predicted on October 24 that the fixed rate could rise from 0.0% to 0.1% on November 1. That 'prediction' was based on comparing the spread between the I Bond's fixed rate and the 5- and 10-year TIPS real yields.
..
If the Treasury were setting a new fixed rate today, I'd guess it would settle on 0.1%, but 0.2% wouldn't be a surprise. But again, a lot can happen before the May 1 reset.
There's much more information in the article.
Interesting article. Thanks for sharing it.

It looks like the yields on both 5 and 10 year TIPS has risen significantly since the article was written in early January.

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Re: I-Bonds?

Post by Silence Dogood » Tue Feb 13, 2018 6:42 pm

Atgard wrote:
Tue Feb 13, 2018 1:39 pm
Silence Dogood wrote:
Tue Feb 13, 2018 1:19 pm
Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?
Yeah, I like to overthink this too, but there's about a 33% chance it will be 0.0%, 33% chance it will stay at 0.1%, and 33% chance it will be 0.2%. Either way, a rounding error, in the grand scheme of things. So I wouldn't sweat it. (Even though I do.) But I definitely wouldn't delay filing a tax return trying to guess the rate (which could go down instead of up).
I almost certainly won't delay.. In fact, I'm not quite sure if I'm going to purchase I bonds with my tax return. I don't expect a large return* and I'm not sure if I bonds are really that great for my situation. I may just buy a small amount so that I can have paper bonds 30 years from now (2048!) when few others do.

*I know it's possible to artificially increase one's tax return by making estimated payments, but I don't bother with this.

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Re: I-Bonds?

Post by Da5id » Wed Feb 14, 2018 1:28 pm

tipswatch also says here https://seekingalpha.com/article/414654 ... ted?page=2# that
If you are planning an investment in I Bonds in 2018, you would be wise to wait until the March 2018 inflation report is issued at 8:30 a.m. EST on April 11. That will set the new variable rate and you'll have two weeks to decide to invest before or after May 1. In my opinion, there's a reasonable chance the I Bond's fixed rate will rise above 0.1% on May 1. Lots to think about.
He also says that currently the variable part of the I-bonds rate is slated to fall but there are 2 months more data to go into that rate.

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Re: I-Bonds?

Post by vtMaps » Wed Feb 14, 2018 1:58 pm

Silence Dogood wrote:
Tue Feb 13, 2018 1:19 pm
Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?
I have a question about this... if I file paper tax returns in mid April, I expect that my refund would not be processed for several weeks... well into the month of May. Would I receive my paper ibonds with the April rate or the May rate?

I have never e-filed my taxes, so I don't know how long it takes to process the refund. If I do e-file in April, should I expect to receive April ibonds?

--vtMaps
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Re: I-Bonds?

Post by need403bhelp » Thu Feb 15, 2018 12:53 pm

vtMaps wrote:
Wed Feb 14, 2018 1:58 pm
Silence Dogood wrote:
Tue Feb 13, 2018 1:19 pm
Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?
I have a question about this... if I file paper tax returns in mid April, I expect that my refund would not be processed for several weeks... well into the month of May. Would I receive my paper ibonds with the April rate or the May rate?

I have never e-filed my taxes, so I don't know how long it takes to process the refund. If I do e-file in April, should I expect to receive April ibonds?

--vtMaps
I am quite curious about this as well. When should one e-file to get paper ibonds with April rates? What about May rates? Thank you!

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Re: I-Bonds?

Post by dodecahedron » Thu Feb 15, 2018 4:11 pm

need403bhelp wrote:
Thu Feb 15, 2018 12:53 pm
vtMaps wrote:
Wed Feb 14, 2018 1:58 pm
Silence Dogood wrote:
Tue Feb 13, 2018 1:19 pm
Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?
I have a question about this... if I file paper tax returns in mid April, I expect that my refund would not be processed for several weeks... well into the month of May. Would I receive my paper ibonds with the April rate or the May rate?

I have never e-filed my taxes, so I don't know how long it takes to process the refund. If I do e-file in April, should I expect to receive April ibonds?

--vtMaps
I am quite curious about this as well. When should one e-file to get paper ibonds with April rates? What about May rates? Thank you!
My guess is that if you paper-file your return by mailing it to the IRS postmarked April 17, you will get the May rates.

A return efiled on April 17 may well get the April rates.

There is a considerable delay in processing paper returns, especially those received in mid-April. (It takes the IRS a while just to open them all and transcribe their contents into their database.

(Fun photo of IRS employees sitting at the so-called "Tingle Tables" processing paper returns.)

need403bhelp
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Re: I-Bonds?

Post by need403bhelp » Thu Feb 15, 2018 6:14 pm

dodecahedron wrote:
Thu Feb 15, 2018 4:11 pm
need403bhelp wrote:
Thu Feb 15, 2018 12:53 pm
vtMaps wrote:
Wed Feb 14, 2018 1:58 pm
Silence Dogood wrote:
Tue Feb 13, 2018 1:19 pm
Does it make sense to delay filing my tax return in order to find out what the fixed rate will be in May (for paper I bonds)?
I have a question about this... if I file paper tax returns in mid April, I expect that my refund would not be processed for several weeks... well into the month of May. Would I receive my paper ibonds with the April rate or the May rate?

I have never e-filed my taxes, so I don't know how long it takes to process the refund. If I do e-file in April, should I expect to receive April ibonds?

--vtMaps
I am quite curious about this as well. When should one e-file to get paper ibonds with April rates? What about May rates? Thank you!
My guess is that if you paper-file your return by mailing it to the IRS postmarked April 17, you will get the May rates.

A return efiled on April 17 may well get the April rates.

There is a considerable delay in processing paper returns, especially those received in mid-April. (It takes the IRS a while just to open them all and transcribe their contents into their database.

(Fun photo of IRS employees sitting at the so-called "Tingle Tables" processing paper returns.)
I see. That sounds like a good plan - E-FILE in mid-to-late April if suspect fixed rate best in April, PAPER file in mid-to-late April if suspect fixed rate best in May (I don't care about variable rate since it is a long term investment).

need403bhelp
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Re: I-Bonds?

Post by need403bhelp » Thu Feb 15, 2018 7:05 pm

Sorry, one more question. If I paper file, how should I mail tax return (regular stamp, certified mail, registered mail, etc.)? I recently had the post office basically lose some certified mail, and so am not sure what the best method would be, especially if mailing in mid/late April close to deadline.

Thank you so much!

EDIT: Actually, this probably won’t matter for me, as I am padding my refund by filing an extension, and so could just use a regular stamp, I suppose. Will still leave question up in case it is relevant to others.

EDIT 2: I guess that I could just pay/file extension on or before April 17th and then e file a day or two later for April I bonds or e file May 2 for May i bonds.

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