Jags4186 wrote: ↑Wed Oct 13, 2021 1:40 pm
Can someone give a quick primer on iBonds for those of us who’s entire investing life have not had interesting iBond rates? 7.12% guaranteed is quite good compared to even savings account bonuses…
I know I need to open an account at Treasury Direct.
What is the iBond purchase limit? Is it an annual limit? (I.E. I can buy $X in December and then $X again in January?)
For a married couple can you each purchase the same amount or is it lumped together?
How long do you have to hold iBonds before you can cash them in? Is it like buying and selling a bond fund?
I’ve heard I can overpay my income taxes and receive refund as iBonds. Is that still true?
I’ll try to answer your questions. Someone please correct me if I provide incorrect information.
You can purchase $10k per year electronically per person. You can also purchase another $10k per year if you have a trust. You can apply an IRS tax refund toward the purchase of paper I bonds of up to $5k per year.
Yes, you can purchase the max in December and then do the max again in January. It is per year.
A married couple would open two separate accounts; it’s not lumped together.
You must hold I Bonds for at least 1 year. If you sell before 5 years, you lose out on 3 months-worth of interest. You can essentially cut this down to a 2-month penalty by purchasing I Bonds near the end of a month. If you purchase at the end of October, for instance, you earn interest for the entire month of October, despite having made the purchase near the end of the month.
As a side note, some people have difficulty establishing an account or linking a bank account at Treasury Direct so it’s a good idea to get the process going a few weeks before you plan to make a purchase in case you happen to encounter problems. I personally have not had any issues.
You pay federal taxes upon withdrawal though you also can opt to pay taxes on the interest each year if you want to do it that way for some reason. There are no state or local taxes to pay. If you withdraw the money during the same year that you have qualified education expenses, you don’t pay any federal tax on the growth either. I happen to like that part a lot.
Yes, you can overpay your income taxes and receive a refund in I Bonds of up to $5k. I haven’t done this myself so maybe someone else can chime in on the details for that.
If you purchase before November 1st, you'll get 3.54% for six months (starting on October 1st) and then earn 7.12% for the six months after that. If you purchase more I Bonds in January, that will earn 7.12% for six months and then some other rate for the six months after that. Since the rate on I Bonds can't go below 0%, even if rates did dip all the way to 0% in another six months, the I Bonds you acquire in January would still earn 3.56% for the year - not too shabby even in the worst case scenario.