Are iBonds still a no-brainer?

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evelynmanley
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Re: Are iBonds still a no-brainer?

Post by evelynmanley »

This subject is also being discussed on another thread:

Re: New I bonds not worth it; consider selling old ones at next reset
viewtopic.php?p=7064049#p7064049
Nver2Late
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Re: Are iBonds still a no-brainer?

Post by Nver2Late »

Startled Cat wrote: Sun Jan 15, 2023 8:50 am The point about tax deferral is correct, but why is that an important consideration for an emergency fund?
If the primary role of the EF is income replacement for job loss, using I-bonds as EF to replace income may create a more favorable tax rate situation where the interest income is now taxed for example in a 12% bracket versus the 24%. This is highly related to ones personal finances, but as a SIF, this scenario is exactly what I'm looking at. I think there is an opportunity due to the tax deferred nature of i-bonds to manipulate the tax rate that you will end up paying on that tax deferred interest.
CletusCaddy
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Re: Are iBonds still a no-brainer?

Post by CletusCaddy »

toddthebod wrote: Sun Jan 15, 2023 10:52 am
bluerafters wrote: Sun Jan 15, 2023 10:47 am I'm surprised to see so many people liquidate or thinking of liquidating their iBonds positions this soon. What am I missing?

I was under the assumption the reason you hold iBonds, and hold them to maturity, is not for yield per se but for the unique characteristics of the bond itself. Besides TIPS I know of nothing else that deals with inflation in my portfolio the way iBonds do. I can wait 30 years. Maybe inflation comes back, maybe not. It sure is nice to have a tranche specifically devoted to fighting this problem.
A lot of people bought I bonds last year for the risk-free return when variable rates cleared 7%. They have a fixed rate of zero. You can do better in many other investments now. I'm personally betting that my money market fund will outearn I bonds over the next year.

If you are planning to hold for 30 years, TIPS are a much better choice.

Also, the "inflation protection" of $20,000 of I bonds is a rounding error in a million dollar plus portfolio.
When inflation goes back down to 2% and long term bonds remain at 4% I will be very tempted to liquidate my IBonds with 0% real yield.

On the other hand liquidating my IBonds means taking an immediate 39% tax hit on all accumulated earnings. That by itself will probably keep me staying the course
WillRetire
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Re: Are iBonds still a no-brainer?

Post by WillRetire »

I-Bonds were never a no-brainer. The funds are locked for 12 months and if sold before 5 years, you lose 3 months of interest. You can only buy limited amounts per year. You cannot repurchase ones that you sell.

Buy new I-Bonds if you want (more of) a riskless/safe store of cash that you don't need for the next 12 months, and which keeps up with inflation and actually beats inflation if fixed component > 0. If that is your goal, buy and keep buying especially when the fixed component > 0.

If you bought because of 9+% rates and now need the cash, then sell. Otherwise, don't sell.

Also, in a period of deflation they are good because they don't lose value, and will pay interest again as soon as the 6-month CPI-U ticks up again. Contrast that with how the SSA COLA works: during deflation, no pay raise until CPI-W is back above where it was the last time you received a pay raise.
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Ocean77
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Re: Are iBonds still a no-brainer?

Post by Ocean77 »

Startled Cat wrote: Sun Jan 15, 2023 8:50 am
Ocean77 wrote: Sat Jan 14, 2023 11:12 pm We use I Bonds as our emergency savings account. It is liquid (except for what one puts in during the previous year), keeps up with inflation, and is tax deferred. There is nothing else that has these 3 features. I don't care about the interest rate, may it be 0 or 0.4% or whatever.
They are only liquid after a year (as you point out), and won't keep up with inflation after taxes. The point about tax deferral is correct, but why is that an important consideration for an emergency fund?
If we keep the emergency fund in a high yield savings account, we pay taxes every year on the interest, and at a pretty high rate (due to our current income). By keeping the money in iBonds, we pay no taxes at all now. In the likely case that we don't ever get any emergency, we will sell the iBonds only after retiring, when we are in a low tax bracket. Chances are we won't pay any taxes on the iBonds interest, as we won't have income from SS or RMD yet when we retire. So all 3 points are correct for us. They may not be for everybody though.
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Kevin M
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Re: Are iBonds still a no-brainer?

Post by Kevin M »

conservativeinvestor wrote: Sun Jan 15, 2023 7:22 am
coachd50 wrote: Sun Jan 15, 2023 6:19 am [quote=Ocean77 post_id=7063387 time=<a href="tel:1673759522">1673759522</a> user_id=153344]
We use I Bonds as our emergency savings account. It is liquid (except for what one puts in during the previous year), keeps up with inflation, and is tax deferred. There is nothing else that has these 3 features. I don't care about the interest rate, may it be 0 or 0.4% or whatever.
I’m also using ibonds for my emergency fund. So my comparison would be against a high yield savings account and from what I’ve seen posted a few different places they will typically match or outperform a hysa. I am on my third year buying i bonds so depending how they compare to hysa will determine if they continue to be a no brainer or not. I suspect they will continue to be worth holding onto. We will see.
Currently, you probably should be comparing to money market fund yields. Yield on VUSXX (VG Treasury MM) was 4.15%, which for me is taxable-equivalent yield (TEY) of 4.71% (at 22% fed and 9.3% state marginal tax rates). By contrast, Ally online savings APY is 3.3% with no tax exemptions.
If I make a calculation error, #Cruncher probably will let me know.
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anon_investor
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Re: Are iBonds still a no-brainer?

Post by anon_investor »

Kevin M wrote: Sun Jan 15, 2023 4:05 pm
conservativeinvestor wrote: Sun Jan 15, 2023 7:22 am
coachd50 wrote: Sun Jan 15, 2023 6:19 am [quote=Ocean77 post_id=7063387 time=<a href="tel:1673759522">1673759522</a> user_id=153344]
We use I Bonds as our emergency savings account. It is liquid (except for what one puts in during the previous year), keeps up with inflation, and is tax deferred. There is nothing else that has these 3 features. I don't care about the interest rate, may it be 0 or 0.4% or whatever.
I’m also using ibonds for my emergency fund. So my comparison would be against a high yield savings account and from what I’ve seen posted a few different places they will typically match or outperform a hysa. I am on my third year buying i bonds so depending how they compare to hysa will determine if they continue to be a no brainer or not. I suspect they will continue to be worth holding onto. We will see.
Currently, you probably should be comparing to money market fund yields. Yield on VUSXX (VG Treasury MM) was 4.15%, which for me is taxable-equivalent yield (TEY) of 4.71% (at 22% fed and 9.3% state marginal tax rates). By contrast, Ally online savings APY is 3.3% with no tax exemptions.
I Bonds still beating all MMFs.
toddthebod
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Re: Are iBonds still a no-brainer?

Post by toddthebod »

anon_investor wrote: Sun Jan 15, 2023 5:44 pm
Kevin M wrote: Sun Jan 15, 2023 4:05 pm
conservativeinvestor wrote: Sun Jan 15, 2023 7:22 am
coachd50 wrote: Sun Jan 15, 2023 6:19 am [quote=Ocean77 post_id=7063387 time=<a href="tel:1673759522">1673759522</a> user_id=153344]
We use I Bonds as our emergency savings account. It is liquid (except for what one puts in during the previous year), keeps up with inflation, and is tax deferred. There is nothing else that has these 3 features. I don't care about the interest rate, may it be 0 or 0.4% or whatever.
I’m also using ibonds for my emergency fund. So my comparison would be against a high yield savings account and from what I’ve seen posted a few different places they will typically match or outperform a hysa. I am on my third year buying i bonds so depending how they compare to hysa will determine if they continue to be a no brainer or not. I suspect they will continue to be worth holding onto. We will see.
Currently, you probably should be comparing to money market fund yields. Yield on VUSXX (VG Treasury MM) was 4.15%, which for me is taxable-equivalent yield (TEY) of 4.71% (at 22% fed and 9.3% state marginal tax rates). By contrast, Ally online savings APY is 3.3% with no tax exemptions.
I Bonds still beating all MMFs.
I'm betting my cash on a money market fund when you measure from today to next January.
Backtests without cash flows are meaningless. Returns without dividends are lies.
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Kevin M
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Re: Are iBonds still a no-brainer?

Post by Kevin M »

anon_investor wrote: Sun Jan 15, 2023 5:44 pm
Kevin M wrote: Sun Jan 15, 2023 4:05 pm
conservativeinvestor wrote: Sun Jan 15, 2023 7:22 am
coachd50 wrote: Sun Jan 15, 2023 6:19 am [quote=Ocean77 post_id=7063387 time=<a href="tel:1673759522">1673759522</a> user_id=153344]
We use I Bonds as our emergency savings account. It is liquid (except for what one puts in during the previous year), keeps up with inflation, and is tax deferred. There is nothing else that has these 3 features. I don't care about the interest rate, may it be 0 or 0.4% or whatever.
I’m also using ibonds for my emergency fund. So my comparison would be against a high yield savings account and from what I’ve seen posted a few different places they will typically match or outperform a hysa. I am on my third year buying i bonds so depending how they compare to hysa will determine if they continue to be a no brainer or not. I suspect they will continue to be worth holding onto. We will see.
Currently, you probably should be comparing to money market fund yields. Yield on VUSXX (VG Treasury MM) was 4.15%, which for me is taxable-equivalent yield (TEY) of 4.71% (at 22% fed and 9.3% state marginal tax rates). By contrast, Ally online savings APY is 3.3% with no tax exemptions.
I Bonds still beating all MMFs.
Since we're talking about what to do in 2023, we don't know that, since we don't yet know what the composite rate will be for the second six months.
If I make a calculation error, #Cruncher probably will let me know.
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Kevin M
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Re: Are iBonds still a no-brainer?

Post by Kevin M »

Also, since you can't redeem an I bond at all for the first year, we really should be comparing to a 1-year rate, not to a MM fund. The 1-year T bill yield on Friday was 4.66%, which is a TEY for me of 5.29%.
Last edited by Kevin M on Mon Jan 16, 2023 5:21 am, edited 1 time in total.
If I make a calculation error, #Cruncher probably will let me know.
Makefile
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Re: Are iBonds still a no-brainer?

Post by Makefile »

Tom_T wrote: Sun Jan 15, 2023 11:09 am
dbr wrote: Sun Jan 15, 2023 10:56 am I suspect that you are missing that the I bond feeding frenzy has been driven by people seeking a short term windfall from the temporary upward dislocation of I bonds nominal yields while other nominal yields lagged and people were freaking over bond fund NAVs were/had been driven down by rising yields (in fairness this was to a historically extreme degree).
+1. I Bonds were not discussed all that much around here in the past. Once the rate shot up, we had more interest here in one year than probably in the entire previous history of the Forum. And, there were many stories in the personal finance media. I bet that most people had never even heard of I Bonds. "Nine percent? What? How? Sign me up!"
I was also amused by the shift in theme from "why not leverage for young investors" to different ways to get around the annual purchase limit on US Savings Bonds.
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anon_investor
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Re: Are iBonds still a no-brainer?

Post by anon_investor »

Kevin M wrote: Sun Jan 15, 2023 6:37 pm Also, since you can't redeem an I bond at all for the first year, we really should be comparing to a 1-year rate, not to a MM fund. The 1-year T bill yield on Friday was 4.66% on Friday, which is a TEY of 5.29%.
I guess it makes sense to wait until April to buy, when we will know the variable rate for the next 6 month period.
pghpens
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Re: Are iBonds still a no-brainer?

Post by pghpens »

For my own sanity, let's assume retirement accounts are maxed out and I'm just looking to save for the next 1-5 years (most likely 1-3). For simplicity, let's say my only 2 options are i-bonds at 6.89% and HYSA at 4.05%. Even if I pull the i-bonds out before 5 years there's really no downside to i-bonds, outisde of the 1 year period where I can't access, right? So if liquidity is not an issue, i'll never make more money on HYSA. If the HYSA % rate surpassed i-bonds I'd just take the i-bonds out and put in the HYSA.
coachd50
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Re: Are iBonds still a no-brainer?

Post by coachd50 »

pghpens wrote: Fri Jan 20, 2023 6:55 pm For my own sanity, let's assume retirement accounts are maxed out and I'm just looking to save for the next 1-5 years (most likely 1-3). For simplicity, let's say my only 2 options are i-bonds at 6.89% and HYSA at 4.05%. Even if I pull the i-bonds out before 5 years there's really no downside to i-bonds, outisde of the 1 year period where I can't access, right? So if liquidity is not an issue, i'll never make more money on HYSA. If the HYSA % rate surpassed i-bonds I'd just take the i-bonds out and put in the HYSA.
Yes. Just keep in mind that the I bond rate is an annualized rate that is only good for 6 months. It could very well be near 0% for the following six months. And any existing bonds purchased with the 0% fixed rate component might pay nothing for 6 months.
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nps
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Re: Are iBonds still a no-brainer?

Post by nps »

pghpens wrote: Fri Jan 20, 2023 6:55 pm For my own sanity, let's assume retirement accounts are maxed out and I'm just looking to save for the next 1-5 years (most likely 1-3). For simplicity, let's say my only 2 options are i-bonds at 6.89% and HYSA at 4.05%. Even if I pull the i-bonds out before 5 years there's really no downside to i-bonds, outisde of the 1 year period where I can't access, right? So if liquidity is not an issue, i'll never make more money on HYSA. If the HYSA % rate surpassed i-bonds I'd just take the i-bonds out and put in the HYSA.
It is definitely possible for you to make more money on HYSA than I bonds
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anon_investor
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Re: Are iBonds still a no-brainer?

Post by anon_investor »

nps wrote: Fri Jan 20, 2023 7:07 pm
pghpens wrote: Fri Jan 20, 2023 6:55 pm For my own sanity, let's assume retirement accounts are maxed out and I'm just looking to save for the next 1-5 years (most likely 1-3). For simplicity, let's say my only 2 options are i-bonds at 6.89% and HYSA at 4.05%. Even if I pull the i-bonds out before 5 years there's really no downside to i-bonds, outisde of the 1 year period where I can't access, right? So if liquidity is not an issue, i'll never make more money on HYSA. If the HYSA % rate surpassed i-bonds I'd just take the i-bonds out and put in the HYSA.
It is definitely possible for you to make more money on HYSA than I bonds
I plan to wait until April when we will know the following 6 month variable rate before deciding whether to buy.
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Re: Are iBonds still a no-brainer?

Post by Tom_T »

coachd50 wrote: Fri Jan 20, 2023 7:07 pm
pghpens wrote: Fri Jan 20, 2023 6:55 pm For my own sanity, let's assume retirement accounts are maxed out and I'm just looking to save for the next 1-5 years (most likely 1-3). For simplicity, let's say my only 2 options are i-bonds at 6.89% and HYSA at 4.05%. Even if I pull the i-bonds out before 5 years there's really no downside to i-bonds, outisde of the 1 year period where I can't access, right? So if liquidity is not an issue, i'll never make more money on HYSA. If the HYSA % rate surpassed i-bonds I'd just take the i-bonds out and put in the HYSA.
Yes. Just keep in mind that the I bond rate is an annualized rate that is only good for 6 months. It could very well be near 0% for the following six months. And any existing bonds purchased with the 0% fixed rate component might pay nothing for 6 months.
Also keep in mind that if inflation continues to subside so that I Bonds pay zero, all other interest rates might also drop at some point, and the HYSA won't be paying 4% anymore.
iykyk
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Re: Are iBonds still a no-brainer?

Post by iykyk »

I will continue to buy i-Bonds every year regardless of rates because it is an excellent way to build a buffer of cash with deferred gains.

Not looking for this money to grow necessarily, but rather be protected from inflation to the best of its ability. If I ever need that money down the line, for any reason at all, I will be able to liquidate holdings and have cash in my bank account almost immediately.
coachd50
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Re: Are iBonds still a no-brainer?

Post by coachd50 »

iykyk wrote: Sat Jan 21, 2023 11:56 pm I will continue to buy i-Bonds every year regardless of rates because it is an excellent way to build a buffer of cash with deferred gains.

Not looking for this money to grow necessarily, but rather be protected from inflation to the best of its ability. If I ever need that money down the line, for any reason at all, I will be able to liquidate holdings and have cash in my bank account almost immediately.
How much of a buffer are you planning to accumulate? What is the timeframe for this accumulation?

I have similar thoughts to yours, but it is tough for me to reconcile the fact that purchasing now for long-term holding could likely result in $10,000 doing almost absolutely nothing for years. As I have mentioned previously, I don’t really see the attractiveness of “deferred taxes” on near zero returns.

So in my case, I am struggling with deciding the amount of I bonds I think are most appropriate for me, and then asking “well do I need to buy in 2023 to get to that amount by _______ date”.

I believe that is why some of my posts on this topic might seem a bit adversarial towards select other form members, because their replies in this thread focused on the results of their purchases from two decades ago instead of the current environment.
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Re: Are iBonds still a no-brainer?

Post by lstone19 »

coachd50 wrote: Sun Jan 22, 2023 7:21 am I believe that is why some of my posts on this topic might seem a bit adversarial towards select other form members, because their replies in this thread focused on the results of their purchases from two decades ago instead of the current environment.
That plus too many people who think that their situation is everyone's situation.
N.Y.Cab
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Re: Are iBonds still a no-brainer?

Post by N.Y.Cab »

After reading up on the topic, I'll wait to see if the fixed rate will increase in May. However, the paper I-bond for tax refund in February is still a no-brainer.
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Re: Are iBonds still a no-brainer?

Post by coachd50 »

N.Y.Cab wrote: Sun Jan 22, 2023 10:45 am After reading up on the topic, I'll wait to see if the fixed rate will increase in May. However, the paper I-bond for tax refund in February is still a no-brainer.
Curious as to why you feel the tax refund source should be considered differently than just buying from treasury direct?
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Re: Are iBonds still a no-brainer?

Post by lstone19 »

coachd50 wrote: Sun Jan 22, 2023 10:53 am
N.Y.Cab wrote: Sun Jan 22, 2023 10:45 am After reading up on the topic, I'll wait to see if the fixed rate will increase in May. However, the paper I-bond for tax refund in February is still a no-brainer.
Curious as to why you feel the tax refund source should be considered differently than just buying from treasury direct?
The fallacy of forgetting that cash is fungible and that source of funds should make a difference in what to do with it.
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Re: Are iBonds still a no-brainer?

Post by N.Y.Cab »

coachd50 wrote: Sun Jan 22, 2023 10:53 am
N.Y.Cab wrote: Sun Jan 22, 2023 10:45 am After reading up on the topic, I'll wait to see if the fixed rate will increase in May. However, the paper I-bond for tax refund in February is still a no-brainer.
Curious as to why you feel the tax refund source should be considered differently than just buying from treasury direct?
The paper bond is one of the best place for emergency fund. My wife just redeemed some recently at the bank, it's less stressful than selling them online.
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Re: Are iBonds still a no-brainer?

Post by lstone19 »

N.Y.Cab wrote: Sun Jan 22, 2023 11:10 am The paper bond is one of the best place for emergency fund. My wife just redeemed some recently at the bank, it's less stressful than selling them online.
Considering the recent stories of fewer and fewer banks cashing paper bonds, I'd disagree since you have the stress of finding a bank to redeem them. And if you can't, then you're looking at several weeks waiting for TD to convert them. While online with TD, is redeem it and then transfer the money (in bank account in two banking days).
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Re: Are iBonds still a no-brainer?

Post by coachd50 »

N.Y.Cab wrote: Sun Jan 22, 2023 11:10 am
coachd50 wrote: Sun Jan 22, 2023 10:53 am
N.Y.Cab wrote: Sun Jan 22, 2023 10:45 am After reading up on the topic, I'll wait to see if the fixed rate will increase in May. However, the paper I-bond for tax refund in February is still a no-brainer.
Curious as to why you feel the tax refund source should be considered differently than just buying from treasury direct?
The paper bond is one of the best place for emergency fund. My wife just redeemed some recently at the bank, it's less stressful than selling them online.
Interesting. So the paper aspect is so valuable to you that it becomes a "no brainer" decision, but online you will make decisions based on financial information.
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Re: Are iBonds still a no-brainer?

Post by toddthebod »

coachd50 wrote: Sun Jan 22, 2023 10:53 am
N.Y.Cab wrote: Sun Jan 22, 2023 10:45 am After reading up on the topic, I'll wait to see if the fixed rate will increase in May. However, the paper I-bond for tax refund in February is still a no-brainer.
Curious as to why you feel the tax refund source should be considered differently than just buying from treasury direct?
I assume he means because the opportunity goes away if you don't take it, while with I bonds you can try to be strategic with your timing relative to rate announcements.

I disagree because of the ease of buying I bonds with entity accounts.
Backtests without cash flows are meaningless. Returns without dividends are lies.
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Re: Are iBonds still a no-brainer?

Post by evelynmanley »

toddthebod wrote: Sun Jan 22, 2023 11:57 am
coachd50 wrote: Sun Jan 22, 2023 10:53 am
N.Y.Cab wrote: Sun Jan 22, 2023 10:45 am After reading up on the topic, I'll wait to see if the fixed rate will increase in May. However, the paper I-bond for tax refund in February is still a no-brainer.
Curious as to why you feel the tax refund source should be considered differently than just buying from treasury direct?
I assume he means because the opportunity goes away if you don't take it, while with I bonds you can try to be strategic with your timing relative to rate announcements.

I disagree because of the ease of buying I bonds with entity accounts.
I've purchased I-Bonds in my sole proprietorship account, easy to do,but it's going to be a pain for me if I want to transfer the funds from the entity account back to my individual account, unless I just want to redeem them. I hate the hassle of having to have a form signed at the bank, then sending it to TD, and who knows how long the process will take. And because we can't assign any beneficiaries to entity accounts, if I don't transfer the funds or redeem them first, it's going to be a pain for my son, who's executor, to deal with getting those funds when I pass.
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Re: Are iBonds still a no-brainer?

Post by mamster »

evelynmanley wrote: Sun Jan 22, 2023 12:43 pm I've purchased I-Bonds in my sole proprietorship account, easy to do,but it's going to be a pain for me if I want to transfer the funds from the entity account back to my individual account, unless I just want to redeem them. I hate the hassle of having to have a form signed at the bank, then sending it to TD, and who knows how long the process will take. And because we can't assign any beneficiaries to entity accounts, if I don't transfer the funds or redeem them first, it's going to be a pain for my son, who's executor, to deal with getting those funds when I pass.
I just sent in this form to transfer bonds from my entity account to our individual accounts. It took about an hour at the bank, and I got the email confirmation from TD saying to expect the transfer process to take up to 13 weeks. Since it's not urgent, this is my new spectator sport!
evelynmanley
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Re: Are iBonds still a no-brainer?

Post by evelynmanley »

mamster wrote: Sun Jan 22, 2023 12:46 pm
evelynmanley wrote: Sun Jan 22, 2023 12:43 pm I've purchased I-Bonds in my sole proprietorship account, easy to do,but it's going to be a pain for me if I want to transfer the funds from the entity account back to my individual account, unless I just want to redeem them. I hate the hassle of having to have a form signed at the bank, then sending it to TD, and who knows how long the process will take. And because we can't assign any beneficiaries to entity accounts, if I don't transfer the funds or redeem them first, it's going to be a pain for my son, who's executor, to deal with getting those funds when I pass.
I just sent in this form to transfer bonds from my entity account to our individual accounts. It took about an hour at the bank, and I got the email confirmation from TD saying to expect the transfer process to take up to 13 weeks. Since it's not urgent, this is my new spectator sport!
This is my definition of a nightmare that is totally unnecessary. I'm hoping luck will be on my side and I'll want to redeem those funds from my entity account way before I or my son has to deal with this ridiculous endeavor!
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Re: Are iBonds still a no-brainer?

Post by toddthebod »

mamster wrote: Sun Jan 22, 2023 12:46 pm
evelynmanley wrote: Sun Jan 22, 2023 12:43 pm I've purchased I-Bonds in my sole proprietorship account, easy to do,but it's going to be a pain for me if I want to transfer the funds from the entity account back to my individual account, unless I just want to redeem them. I hate the hassle of having to have a form signed at the bank, then sending it to TD, and who knows how long the process will take. And because we can't assign any beneficiaries to entity accounts, if I don't transfer the funds or redeem them first, it's going to be a pain for my son, who's executor, to deal with getting those funds when I pass.
I just sent in this form to transfer bonds from my entity account to our individual accounts. It took about an hour at the bank, and I got the email confirmation from TD saying to expect the transfer process to take up to 13 weeks. Since it's not urgent, this is my new spectator sport!
I'm curious about the tax implications of doing this. When ownership of a savings bond changes, unless you are gifting to a spouse, the original owner has to pay tax on interest accrued to that point, and then the new owner needs to track the new basis manually until they redeem/dispose of the bond. Is transferring a bond from a sole proprietorship to the individual considered a change of ownership?
Backtests without cash flows are meaningless. Returns without dividends are lies.
coachd50
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Re: Are iBonds still a no-brainer?

Post by coachd50 »

lstone19 wrote: Sun Jan 22, 2023 11:13 am
N.Y.Cab wrote: Sun Jan 22, 2023 11:10 am The paper bond is one of the best place for emergency fund. My wife just redeemed some recently at the bank, it's less stressful than selling them online.
Considering the recent stories of fewer and fewer banks cashing paper bonds, I'd disagree since you have the stress of finding a bank to redeem them. And if you can't, then you're looking at several weeks waiting for TD to convert them. While online with TD, is redeem it and then transfer the money (in bank account in two banking days).
This would be my concern too, especially if one is looking to hold onto the bonds for 10+ years. No telling what services will and won't be available at brick and mortar banks.
N.Y.Cab
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Re: Are iBonds still a no-brainer?

Post by N.Y.Cab »

coachd50 wrote: Sun Jan 22, 2023 1:29 pm
lstone19 wrote: Sun Jan 22, 2023 11:13 am
N.Y.Cab wrote: Sun Jan 22, 2023 11:10 am The paper bond is one of the best place for emergency fund. My wife just redeemed some recently at the bank, it's less stressful than selling them online.
Considering the recent stories of fewer and fewer banks cashing paper bonds, I'd disagree since you have the stress of finding a bank to redeem them. And if you can't, then you're looking at several weeks waiting for TD to convert them. While online with TD, is redeem it and then transfer the money (in bank account in two banking days).
This would be my concern too, especially if one is looking to hold onto the bonds for 10+ years. No telling what services will and won't be available at brick and mortar banks.
We're staying in touch by redeeming EE bonds as they reach face value this year then some low valued I-bonds every few months starting next year.
mamster
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Re: Are iBonds still a no-brainer?

Post by mamster »

toddthebod wrote: Sun Jan 22, 2023 1:28 pm I'm curious about the tax implications of doing this. When ownership of a savings bond changes, unless you are gifting to a spouse, the original owner has to pay tax on interest accrued to that point, and then the new owner needs to track the new basis manually until they redeem/dispose of the bond. Is transferring a bond from a sole proprietorship to the individual considered a change of ownership?
All of your fears are very real. :D

Yes, it's a change of ownership, and I will have to pay tax on the accrued interest, and will need to track the basis manually.

However, it was just two $10K bonds that aren't very old, and we're not in a high tax bracket, so it's not a big deal. I opened the entity account before learning about the Gift Box approach, and I'd rather have fewer accounts, so I decided to spend a morning hanging out with my friends at the credit union and their medallion stamps.
mamster
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Re: Are iBonds still a no-brainer?

Post by mamster »

evelynmanley wrote: Sun Jan 22, 2023 12:55 pm This is my definition of a nightmare that is totally unnecessary. I'm hoping luck will be on my side and I'll want to redeem those funds from my entity account way before I or my son has to deal with this ridiculous endeavor!
We're in the same situation, Evelyn! I was updating my "financial to-dos if I die" document for my wife, and I was like, hmm, I wouldn't want her to have to deal with this $22K TD account that would probably get probated.

If the balance were larger than that and I would have had to distribute it over multiple years I probably would have just left it and hoped for the best.
comeinvest
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Re: Are iBonds still a no-brainer?

Post by comeinvest »

CletusCaddy wrote: Sun Jan 15, 2023 11:20 am
toddthebod wrote: Sun Jan 15, 2023 10:52 am
bluerafters wrote: Sun Jan 15, 2023 10:47 am I'm surprised to see so many people liquidate or thinking of liquidating their iBonds positions this soon. What am I missing?

I was under the assumption the reason you hold iBonds, and hold them to maturity, is not for yield per se but for the unique characteristics of the bond itself. Besides TIPS I know of nothing else that deals with inflation in my portfolio the way iBonds do. I can wait 30 years. Maybe inflation comes back, maybe not. It sure is nice to have a tranche specifically devoted to fighting this problem.
A lot of people bought I bonds last year for the risk-free return when variable rates cleared 7%. They have a fixed rate of zero. You can do better in many other investments now. I'm personally betting that my money market fund will outearn I bonds over the next year.

If you are planning to hold for 30 years, TIPS are a much better choice.

Also, the "inflation protection" of $20,000 of I bonds is a rounding error in a million dollar plus portfolio.
When inflation goes back down to 2% and long term bonds remain at 4% I will be very tempted to liquidate my IBonds with 0% real yield.

On the other hand liquidating my IBonds means taking an immediate 39% tax hit on all accumulated earnings. That by itself will probably keep me staying the course
If you held the I-Bonds since Dec 2021 or Jan 2022 like many of us, then the tax hit will be 39% on ca. 12% of gain -> ca. 4.7%. Compare that to getting 0% real vs. the prevailing market rate of ca. 1.5% real for the next 29 years. I know there is deflation protection and tax deferral benefits; but I think I don't have to use a spreadsheet to tell that it is a rational decision to sell the I-Bonds.
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Darth Xanadu
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Re: Are iBonds still a no-brainer?

Post by Darth Xanadu »

coachd50 wrote: Sun Jan 22, 2023 7:21 am
iykyk wrote: Sat Jan 21, 2023 11:56 pm I will continue to buy i-Bonds every year regardless of rates because it is an excellent way to build a buffer of cash with deferred gains.

Not looking for this money to grow necessarily, but rather be protected from inflation to the best of its ability. If I ever need that money down the line, for any reason at all, I will be able to liquidate holdings and have cash in my bank account almost immediately.
How much of a buffer are you planning to accumulate? What is the timeframe for this accumulation?

I have similar thoughts to yours, but it is tough for me to reconcile the fact that purchasing now for long-term holding could likely result in $10,000 doing almost absolutely nothing for years. As I have mentioned previously, I don’t really see the attractiveness of “deferred taxes” on near zero returns.

So in my case, I am struggling with deciding the amount of I bonds I think are most appropriate for me, and then asking “well do I need to buy in 2023 to get to that amount by _______ date”.
Good questions; I have been buying since 2018 and plan to continue, but I admit I haven't thought a whole lot about when to shift tactics (i.e. start replacing 0% fixed bonds with new, higher fixed rate bonds, or foregoing purchase altogether). I'll need to ruminate on that some more.

I suppose that because one of my primary reasons to accumulate is the tax-free earnings when paying for qualified education expense, and because my kids are still in pre-school, I have some time to fine-tune the approach.
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seajay
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Re: Are iBonds still a no-brainer?

Post by seajay »

Rachel5590 wrote: Mon Jan 09, 2023 9:55 am I invested in iBonds for my spouce and I: 20k Dec 2021, 20k Jan 2022 and 10k just now 2023. I was going to invest another 10k but thought I should inquire first if there's any other similar investment I should consider.
In times of old (pre 1930's), money was gold (silver), coins worth their weight.
If you lent that gold (money) to the King/State, they'd pay you interest, returned more gold than you lent to them.

Nowadays you have to short (sell) gold in order to lend to the state. Inflation is just another form of taxation, and nominal 'gains' that might just match inflation may be taxed, in net terms may buy back less gold than you originally sold to lend to the state.

Depending upon how much the state opts to devalue the currency (print/spend resulting in 'inflation') and at what level it directs interest rate and taxation policies will have bearing upon how much round trip gold you end up holding. More often when times are bad inflation, interest rates and taxation tend to rise, whilst the price of gold also tends to rise - such that you lose out by having lent to the state. In good times the state may be more generous and having lent may be beneficial. A reasonable diversifier alongside inflation bonds is to hold some gold, a non-fiat global currency (and a commodity).

How much? Well instead of a 60/40 stock/TIPS, perhaps 60/25/15 stock/TIPS/gold. That way if the 60 stock halves to 30 value, whilst 15 gold doubles to 30 value ... you have the option to sell gold and double up on the number of stock shares you hold.

See this PV example and 60/25/15 Stock/TIPS/Gold was broadly similar to 60/40 stock/TIPS, but click the 'Assets' link/tab, scroll to the bottom and note how from the start date of 2001 for available data hover over the 2002 year and see how stocks declined -21% whilst gold gained +25%, which would have been a opportunity to sell gold to buy more stock exposure with the sale proceeds - that would have increased the number of stock shares you held by 40%.
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