I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

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elpollo
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I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

Hello,

I inherited a large sum of the early I-bonds, with deferred interest.

I am trying to make a decision whether to cash some of them in early, to maintain my ACA(obamacare) APTC (advanced premium tax credits). I am early retired.

1) I am aware there is no ACA "cliff" for 2024 and 2025 (but no idea if this might be extended for 2026).


2) I have the /a
retirement portfolio manager spreadsheet with data inputted.
(viewtopic.php?t=97352&start=1800)

, and have inputed 2 variations to spread out the I-bond deferred interest over age 62 - 66 , I will likely sign up for part B medicare when eligible(at age 65 or sign up for part D), and am aware, that for IRMAA, I can send in a form to explain that my income will NOT stay permanently at a higher level.

B) I don't plan on taking any RMDs till age 70+ ; nor Social Security till at least 67 (after the date of the end of the main deferred interest due dates)

The sequence of the deferred interest is roughly

2029 (62) $4k //2030 (63) $70k //2031 (64) $30k //2032 (65) $40k // 2033 (66) $40k /

C) if I did nothing my AGI for pre-medicare would be > "the cliff" for only age 63 and possible age 64 (at present I receive some $800+/month of APTC ! )
1) I could take 1/2 of the lump sum of age 63 and take it this year and next (while the ACA non-cliff is still in effect) or even spread out the $40k over age 58- 62 and aim to stay beneath the cliff for years 2026-28 as well.


https://thefinancebuff.com/tax-calculat ... bsidy.html

https://forum.mrmoneymustache.com/forum ... t-updates/

I do also have TurboTax software.

D) the I-bonds at present, are paying 6.7%- 7.6%

E) my 1st inclination is to just do nothing and live without the potentially $1200/month APTCs ($14k/year)
1) 2nd choice might be to just 1/2 the age 63 I -bonds and take half in 2024 half in 2025, to take guess work out of the extension of the non-ACA "cliff"

not a bad problem to have, but I'd like to be smart about it.
I'll stop there, any inputs appreciated.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by steadyosmosis »

elpollo wrote: Tue Mar 26, 2024 2:46 pm D) the I-bonds at present, are paying 6.7%- 7.6%
I would NOT early-redeem Series I savings bonds paying those rates of interest.
Age<59.5. Early-retired. AA ~55/45. Taxable account, Roth IRA, HSA...all are 100% equities. 100% of fixed income is in tIRA. I spend from taxable and rebalance in tIRA.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by Tourne »

If you are not already using one, you might want to consider going for a High Deductible ACA plan, then contributing the full amount ($8,300 this year, for a married couple/family plan) to a Health Savings Account. This often helps in managing income to maximize premium credits and/or managing around the “cliff”, if it reappears in the future.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

Tourne wrote: Tue Mar 26, 2024 5:25 pm If you are not already using one, you might want to consider going for a High Deductible ACA plan, then contributing the full amount ($8,300 this year, for a married couple/family plan) to a Health Savings Account. This often helps in managing income to maximize premium credits and/or managing around the “cliff”, if it reappears in the future.
sadly, I've never really understood HSAs. I sort of assumed it was for folks with employment income. I have always had the Silver type plans via the ACA, and that is what I currently have.
1) what about in 2025 if I signed up for a Bronze ACA plan for just 2025 , and then ?? (sorry I don't understand)


sorry, I don't understand , either, what you mean by "manage around the cliff" via an HSA.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by grabiner »

elpollo wrote: Tue Mar 26, 2024 6:09 pm
Tourne wrote: Tue Mar 26, 2024 5:25 pm If you are not already using one, you might want to consider going for a High Deductible ACA plan, then contributing the full amount ($8,300 this year, for a married couple/family plan) to a Health Savings Account. This often helps in managing income to maximize premium credits and/or managing around the “cliff”, if it reappears in the future.
sadly, I've never really understood HSAs. I sort of assumed it was for folks with employment income. I have always had the Silver type plans via the ACA, and that is what I currently have.
1) what about in 2025 if I signed up for a Bronze ACA plan for just 2025 , and then ?? (sorry I don't understand)


sorry, I don't understand , either, what you mean by "manage around the cliff" via an HSA.
You may be confusing HSAs with FSAs (Flexible Spending Accounts). FSAs are tied to your employer. In contrast, HSAs are yours; contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses at any time are tax-free. The only requirement for an HSA is that you must have a qualifying High Deductible Health Plan and no other insurance. On the ACA, plans which are HSA-qualified will normally have "HSA" or "HDHP" in their names.

Contributions to an HSA are subtracted from your Adjusted Gross Income on your tax form. Therefore, these contributions will reduce the income that is used for computing ACA subsidies. If the ACA cliff comes back, using an HDHP and maxing out the HSA might move you from over to under the cliff.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

grabiner wrote: Tue Mar 26, 2024 6:43 pm
elpollo wrote: Tue Mar 26, 2024 6:09 pm
Tourne wrote: Tue Mar 26, 2024 5:25 pm If you are not already using one, you might want to consider going for a High Deductible ACA plan, then contributing the full amount ($8,300 this year, for a married couple/family plan) to a Health Savings Account. This often helps in managing income to maximize premium credits and/or managing around the “cliff”, if it reappears in the future.
sadly, I've never really understood HSAs. I sort of assumed it was for folks with employment income. I have always had the Silver type plans via the ACA, and that is what I currently have.
1) what about in 2025 if I signed up for a Bronze ACA plan for just 2025 , and then ?? (sorry I don't understand)


sorry, I don't understand , either, what you mean by "manage around the cliff" via an HSA.
You may be confusing HSAs with FSAs (Flexible Spending Accounts). FSAs are tied to your employer. In contrast, HSAs are yours; contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses at any time are tax-free. The only requirement for an HSA is that you must have a qualifying High Deductible Health Plan and no other insurance. On the ACA, plans which are HSA-qualified will normally have "HSA" or "HDHP" in their names.

Contributions to an HSA are subtracted from your Adjusted Gross Income on your tax form. Therefore, these contributions will reduce the income that is used for computing ACA subsidies. If the ACA cliff comes back, using an HDHP and maxing out the HSA might move you from over to under the cliff.
thank you for your reply. So, in my situation with a base investment income of say $20-$30k, any thought of redeeming some of the 6% I-bonds early sir?

I look to be well-over , the ACA cliff in particular in 2030, which I suppose would be the I-bonds I use redeem early
Last edited by elpollo on Wed Mar 27, 2024 3:19 pm, edited 1 time in total.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by Thesaints »

If you inherited them, isn’t their basis stepped up ?
Maybe you mean you were listed as beneficiary on the bonds, in which case you might be responsible for prior interest accumulated ?
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by Tru Blu »

I Bonds do not get a stepped up basis on death. And how much interest the beneficiary must pay depends on how the executor of the decedents estate handled the interest on the decedents last income tax return.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by AlmstRtrd »

OP,

How old are you now? Looked for that detail in your first post but didn't see it.

Just wanted to say that I also have some 2029 - 2032 I-Bonds but none for 2033. My 2032 bonds all have a fixed rate of 2% so those would be the first batch I would sell from if I had to sell.

Here's a chart of rates (both fixed rate and inflation rate) for I-bonds starting in September of 1998:

https://www.yourtreasurydirect.com/rates/ibonds

Anyway, redeem the 2029 to 2031 bonds last. At least that is what I would do.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

Tru Blu wrote: Wed Mar 27, 2024 2:06 pm I Bonds do not get a stepped up basis on death. And how much interest the beneficiary must pay depends on how the executor of the decedents estate handled the interest on the decedents last income tax return.
yes, I wasn't the executor, a sibling was, not sure we had any idea that there was a choice (this was 14 year ago) ;he/we had a CPA do the final tax preparation , but ofc they may not have known or asked anything about overall asset types, nor provide any advice.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

AlmstRtrd wrote: Wed Mar 27, 2024 2:22 pm OP,

How old are you now? Looked for that detail in your first post but didn't see it.

Just wanted to say that I also have some 2029 - 2032 I-Bonds but none for 2033. My 2032 bonds all have a fixed rate of 2% so those would be the first batch I would sell from if I had to sell.

Here's a chart of rates (both fixed rate and inflation rate) for I-bonds starting in September of 1998:

https://www.yourtreasurydirect.com/rates/ibonds

Anyway, redeem the 2029 to 2031 bonds last. At least that is what I would do.
late 50s ,
so looking at it some more the final lump sum comes due in the year I turn 65 , playing around with the RPM (see OP) there is a column that shows likely APTCs which seems to be about $60k and add in the HSA of ~$8k to deduct I could aim for $68k MAGI for a few of the years , instead of going over the "cliff" in 3 of the others.

Just not sure how one comes to a decision, what is the priority?
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

grabiner wrote: Tue Mar 26, 2024 6:43 pm
elpollo wrote: Tue Mar 26, 2024 6:09 pm
Tourne wrote: Tue Mar 26, 2024 5:25 pm If you are not already using one, you might want to consider going for a High Deductible ACA plan, then contributing the full amount ($8,300 this year, for a married couple/family plan) to a Health Savings Account. This often helps in managing income to maximize premium credits and/or managing around the “cliff”, if it reappears in the future.
sadly, I've never really understood HSAs. I sort of assumed it was for folks with employment income. I have always had the Silver type plans via the ACA, and that is what I currently have.
1) what about in 2025 if I signed up for a Bronze ACA plan for just 2025 , and then ?? (sorry I don't understand)


sorry, I don't understand , either, what you mean by "manage around the cliff" via an HSA.
You may be confusing HSAs with FSAs (Flexible Spending Accounts). FSAs are tied to your employer. In contrast, HSAs are yours; contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses at any time are tax-free. The only requirement for an HSA is that you must have a qualifying High Deductible Health Plan and no other insurance. On the ACA, plans which are HSA-qualified will normally have "HSA" or "HDHP" in their names.

Contributions to an HSA are subtracted from your Adjusted Gross Income on your tax form. Therefore, these contributions will reduce the income that is used for computing ACA subsidies. If the ACA cliff comes back, using an HDHP and maxing out the HSA might move you from over to under the cliff.
actually, the ~$4000 HSA contribution (with lowered MAGI) won't make much difference for the balloon numbers in the OP post. As that is not the only my only retirement income.

looks like 4 years of far above the cliff, unless I begin this year. The final year being the year I turn 65, in November, so another complication.

perhaps not a lot of harm redeeming the 3% real I-bonds in the current higher rate environment, esp doing it piecemeal over 2024- 2028 or so ?
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by TBillT »

I am executor for my mother and I am paying iBond tax on her final return, which was decent chunk of interest but still below her standard deduction (so no tax owed). I think that works but I have not submitted return yet. Saved one bond from 2008 that was ~1% fixed sold the rest later as part of the estate.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

TBillT wrote: Fri Mar 29, 2024 11:30 am I am executor for my mother and I am paying iBond tax on her final return, which was decent chunk of interest but still below her standard deduction (so no tax owed). I think that works but I have not submitted return yet. Saved one bond from 2008 that was ~1% fixed sold the rest later as part of the estate.
hmm, so were you the beneficiary of the I-bond? and are you keeping the I-bond/s ?

I may have asked this question to the CPA years ago, not sure I could track down that answer or the final 1040 from the estate.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by TBillT »

elpollo wrote: Sat Mar 30, 2024 11:25 pm
TBillT wrote: Fri Mar 29, 2024 11:30 am I am executor for my mother and I am paying iBond tax on her final return, which was decent chunk of interest but still below her standard deduction (so no tax owed). I think that works but I have not submitted return yet. Saved one bond from 2008 that was ~1% fixed sold the rest later as part of the estate.
hmm, so were you the beneficiary of the I-bond? and are you keeping the I-bond/s ?

I may have asked this question to the CPA years ago, not sure I could track down that answer or the final 1040 from the estate.
I am planning on keeping one paper 2008 1% fixed iBond that happened to have my name as beneficiary. I am assuming if I report the income on Mom's final return, then I am tax free until after DoD.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

TBillT wrote: Mon Apr 01, 2024 10:56 am
elpollo wrote: Sat Mar 30, 2024 11:25 pm
TBillT wrote: Fri Mar 29, 2024 11:30 am I am executor for my mother and I am paying iBond tax on her final return, which was decent chunk of interest but still below her standard deduction (so no tax owed). I think that works but I have not submitted return yet. Saved one bond from 2008 that was ~1% fixed sold the rest later as part of the estate.
hmm, so were you the beneficiary of the I-bond? and are you keeping the I-bond/s ?

I may have asked this question to the CPA years ago, not sure I could track down that answer or the final 1040 from the estate.
I am planning on keeping one paper 2008 1% fixed iBond that happened to have my name as beneficiary. I am assuming if I report the income on Mom's final return, then I am tax free until after DoD.
Oh I see, so you can put the deferred interest onto the Trust 1041 form, but only if you sell the I-bond?

I our case we didn't sell the I-bonds, so not sure we could have put the deferred interest onto the I-bond.


I wish I could get closer to a decision how to handle this for tax year 2024 , and the end of "the cliff" ; I guess I could try to compare the loss of the a few years of 6% interest vs. the loss of some value of APTC , maybe via a spreadsheet that I originally posted, which seems more intended for assessing APTC value vs. Roth Conversions....

I guess I could do nothing, wait till October, and see what a HDHP+ plan cost for 2024, then still have a month to decide ?

Though, I'm thinking also I could just do nothing, and use a HDHP+ during the years when I think I'll be over "the cliff" ?

As I understand it, If I turn 65 in November, perhaps that particular year the ACA may fully apply?


thanks for any feedback, and experiences
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

Tru Blu wrote: Wed Mar 27, 2024 2:06 pm I Bonds do not get a stepped up basis on death. And how much interest the beneficiary must pay depends on how the executor of the decedents estate handled the interest on the decedents last income tax return.
so for savings bonds, where one IS the beneficiary, and doesn't cash in the savings bonds, is there actually an option to pay the accrued deferred interest on the decedents last trust 1041 filing??

And then later, note what the accrued interest was, when the beneficiary continues to accrue the deferred interest as owner? When it no longer accrues interest, then deduct that marker of what the accrued interest was at Date of Death or so?

Seems unlikely
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by bongo »

steadyosmosis wrote: Tue Mar 26, 2024 4:44 pm
elpollo wrote: Tue Mar 26, 2024 2:46 pm D) the I-bonds at present, are paying 6.7%- 7.6%
I would NOT early-redeem Series I savings bonds paying those rates of interest.
So selling some now means losing out on the future (good) interest, but holding to maturity means a tax bomb.

OP, how about if you transfer some to your spouse each year? From my understanding, you will get a 1099-int for the interest so far on those bonds. At maturity your spouse will get a 1099-int for the rest of the interest. You can pick any bond/amount to transfer to dial in the exact amount of interest you want to recognize each year.

If you don't have a spouse, maybe you can swap with your sibling - if they are also willing to recognize some interest each year.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

bongo wrote: Thu Apr 04, 2024 5:02 pm
steadyosmosis wrote: Tue Mar 26, 2024 4:44 pm
elpollo wrote: Tue Mar 26, 2024 2:46 pm D) the I-bonds at present, are paying 6.7%- 7.6%
I would NOT early-redeem Series I savings bonds paying those rates of interest.
So selling some now means losing out on the future (good) interest, but holding to maturity means a tax bomb.

OP, how about if you transfer some to your spouse each year? From my understanding, you will get a 1099-int for the interest so far on those bonds. At maturity your spouse will get a 1099-int for the rest of the interest. You can pick any bond/amount to transfer to dial in the exact amount of interest you want to recognize each year.

If you don't have a spouse, maybe you can swap with your sibling - if they are also willing to recognize some interest each year.
thanks for the idea, I'm single, I do Not get a yearly 1099-INT , no.

I have a sibling, but he is in a higher bracket than me, though he has employer insurance not ACA ?

afaik, only option for savings bonds is to use some for Educational purpose, to not have to realized the large deferred interest?, do you know something more?
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by Jack FFR1846 »

Have you figured out what it would cost you in higher ACA rates with small number of bond sales starting this year? I'd think you could sell off at least some of the bonds yearly. Once you get to Medicare, you can have a MAGI of over $100k and hot hit IRMAA.

If you were to not cash an iBond at maturity to avoid income, I have never heard of any penalty imposed. We cashed DW's grandparents' savings bonds, some of which had matured in the early 1970's a couple years ago and there were no penalties whatsoever.
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

Jack FFR1846 wrote: Thu Apr 04, 2024 5:34 pm Have you figured out what it would cost you in higher ACA rates with small number of bond sales starting this year? I'd think you could sell off at least some of the bonds yearly. Once you get to Medicare, you can have a MAGI of over $100k and hot hit IRMAA.

If you were to not cash an iBond at maturity to avoid income, I have never heard of any penalty imposed. We cashed DW's grandparents' savings bonds, some of which had matured in the early 1970's a couple years ago and there were no penalties whatsoever.
I just know that my monthly APTC are about $850 , for an declared income I think of about $30k ; but, am not aware how to determine what the APTCs would be if I realized says $10-$20k for this year, (when the "cliff" is not being used)

so, in the tax year 2030, I will be 65, in the month of November, I'm not sure how to handle that year for the ACA either (assuming it still exists). I believe , the idea is to sign up for it 6 months before the DOB or so, maybe the AGI will be partial for that year or pro-rated?

The Final Maturity of the Savings Bonds will be the year 2031, there is 1-3 I-bonds coming due from year 2027-2031

My understanding is that it is required to pay the deferred tax for the Tax Year of the "final maturity" ; it would be interesting if that were NOT true. !
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by bongo »

elpollo wrote: Tue Mar 26, 2024 2:46 pm 2029 (62) $4k //2030 (63) $70k //2031 (64) $30k //2032 (65) $40k // 2033 (66) $40k /
elpollo wrote: Thu Apr 04, 2024 5:56 pm so, in the tax year 2030, I will be 65, in the month of November, I'm not sure how to handle that year for the ACA either (assuming it still exists). I believe , the idea is to sign up for it 6 months before the DOB or so, maybe the AGI will be partial for that year or pro-rated?

The Final Maturity of the Savings Bonds will be the year 2031, there is 1-3 I-bonds coming due from year 2027-2031
A little confusing now since the dates/ages have changed. Are there really ibonds maturing in 2027?

Can you be sure that you can target your total income safely by taking some interest over the next 2 years? It'd be a waste to go thru the effort and still go over the cliff.

Maybe the lost interest is secondary, but the idea of triggering interest by transferring comes from this page at the bottom "If ownership changes" https://www.treasurydirect.gov/savings- ... ax--685591
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

bongo wrote: Thu Apr 04, 2024 8:29 pm
elpollo wrote: Tue Mar 26, 2024 2:46 pm 2029 (62) $4k //2030 (63) $70k //2031 (64) $30k //2032 (65) $40k // 2033 (66) $40k /
elpollo wrote: Thu Apr 04, 2024 5:56 pm so, in the tax year 2030, I will be 65, in the month of November, I'm not sure how to handle that year for the ACA either (assuming it still exists). I believe , the idea is to sign up for it 6 months before the DOB or so, maybe the AGI will be partial for that year or pro-rated?

The Final Maturity of the Savings Bonds will be the year 2031, there is 1-3 I-bonds coming due from year 2027-2031
A little confusing now since the dates/ages have changed. Are there really ibonds maturing in 2027?

Can you be sure that you can target your total income safely by taking some interest over the next 2 years? It'd be a waste to go thru the effort and still go over the cliff.

Maybe the lost interest is secondary, but the idea of triggering interest by transferring comes from this page at the bottom "If ownership changes" https://www.treasurydirect.gov/savings- ... ax--685591
sorry, the Bonds maturing in 2027 are EE bonds, not I-bonds . fwiw
It was 14 years ago , but likely it was this
"Two people are named on the bond and one dies The surviving person becomes the owner as if the survivor had been the only owner from the date we issued the bond."
https://www.treasurydirect.gov/savings- ... -of-owner/

I suppose my father might have paid the interest yearly, but then I don't think it would appear at Treasury Direct, as "interest", which I'm assuming is all the deferred interest on the I-bonds.

per your link it would probably be close to this:
You use your money to buy a bond that you put in your name with a co-owner You owe the tax
However, I'm guessing none of these apply if the purchaser of the Bond passes away ?
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

bongo wrote: Thu Apr 04, 2024 8:29 pm
elpollo wrote: Tue Mar 26, 2024 2:46 pm 2029 (62) $4k //2030 (63) $70k //2031 (64) $30k //2032 (65) $40k // 2033 (66) $40k /
elpollo wrote: Thu Apr 04, 2024 5:56 pm so, in the tax year 2030, I will be 65, in the month of November, I'm not sure how to handle that year for the ACA either (assuming it still exists). I believe , the idea is to sign up for it 6 months before the DOB or so, maybe the AGI will be partial for that year or pro-rated?

The Final Maturity of the Savings Bonds will be the year 2031, there is 1-3 I-bonds coming due from year 2027-2031
A little confusing now since the dates/ages have changed. Are there really ibonds maturing in 2027?

Can you be sure that you can target your total income safely by taking some interest over the next 2 years? It'd be a waste to go thru the effort and still go over the cliff.

Maybe the lost interest is secondary, but the idea of triggering interest by transferring comes from this page at the bottom "If ownership changes" https://www.treasurydirect.gov/savings- ... ax--685591
if you kindly re-read my OP, there is *no ACA "cliff" for 2024 and 2025, which is part of my incentive to realize some of the deferred interest this year, might even be smart to realize a larger chunk, despite the loss of the interest.

Now if I can really pick and choose when to realize the deferred interest, this would all be easier (per the other post above, I'm doubting that though)
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bongo
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by bongo »

I think your years are off by 2 then in the OP. Ie bonds mature starting in 2027 when you are 62 and onwards. (It just wasn't clear if the years were off or the ages were off by 2.)

yeah, I meant I agree that it makes sense to spread out the interest now, esp without the cliffs, but make sure you will benefit later. It'd be a shame to sell early and still go over the cliff later because of a mis-estimate. I am suggesting seeing if the transfer idea works to avoid giving up the high paying bonds early, unless it's not a big deal to you or too much hassle to figure out (esp if no spouse). btw the part I was referring to on that page says:
If ownership changes
Situation You give up ownership of the bond. We reissue the bond.
Who owes the tax You owe tax on the interest the bond earned until it was reissued.
Situation You are the new owner of a reissued bond.
Who owes the tax You owe tax on the interest the bond earns after it was reissued.

For electronic savings bonds in TreasuryDirect
  • When we reissue the bond, we report the total interest the bond earned so far on a 1099-INT in the name and Social Security Number of the person being removed (the previous owner).
  • When the new owner later cashes in the bond or the bond matures, we report the interest in the name and Social Security Number of the person being paid (the new owner). However, we report only the interest earned after we reissued the bond.
Therefore, whether you are the old owner or the new owner of an electronic savings bond, your 1099-INT will reflect the interest you earned on your EE or I savings bonds.
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elpollo
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by elpollo »

bongo wrote: Fri Apr 05, 2024 12:23 am I think your years are off by 2 then in the OP. Ie bonds mature starting in 2027 when you are 62 and onwards. (It just wasn't clear if the years were off or the ages were off by 2.)

yeah, I meant I agree that it makes sense to spread out the interest now, esp without the cliffs, but make sure you will benefit later. It'd be a shame to sell early and still go over the cliff later because of a mis-estimate. I am suggesting seeing if the transfer idea works to avoid giving up the high paying bonds early, unless it's not a big deal to you or too much hassle to figure out (esp if no spouse). btw the part I was referring to on that page says:
If ownership changes
Situation You give up ownership of the bond. We reissue the bond.
Who owes the tax You owe tax on the interest the bond earned until it was reissued.
Situation You are the new owner of a reissued bond.
Who owes the tax You owe tax on the interest the bond earns after it was reissued.

For electronic savings bonds in TreasuryDirect
  • When we reissue the bond, we report the total interest the bond earned so far on a 1099-INT in the name and Social Security Number of the person being removed (the previous owner).
  • When the new owner later cashes in the bond or the bond matures, we report the interest in the name and Social Security Number of the person being paid (the new owner). However, we report only the interest earned after we reissued the bond.
Therefore, whether you are the old owner or the new owner of an electronic savings bond, your 1099-INT will reflect the interest you earned on your EE or I savings bonds.
well, I appreciate talking it out, it helps me to do some more of the homework. For example, I believe for the purposes of "who owns the tax" , seems clearly to be myself (and there would have been no way to put it on my father's last tax return, other than maybe selling it and declaring I wasn't the owner in 2010).

re: the 1997 EE bond deferred interest, it is relatively small, so not worth mentioning.
3) AFAICT, there is *no / not an option to transfer these I-bonds to anyone , and *not have to then pay the deferred interest tax myself.
one website says this :
If the bonds are transferred as a gift and you completely remove your name from the bonds, you are responsible for paying taxes on all of the accrued interest of the bonds.
a) the gift tax maximum for 2024 seems to be about $18k, one assumes that doesn't included the deferred interest? But, again AFAIK, the only exception for redeeming the I-bonds tax-free would be to pay for a child's education ; which is Not my situation
Interest earned on I bonds can be excluded from federal taxes when used for qualified education expenses paid for the taxpayer, a spouse, or a dependent at a postsecondary educational institution.
If you know something different , please send me a reference :) :happy

4) since regular money market or short term treasuries are paying close to 5%, maybe it isn't such a sacrifice to not make the 6-7% for 5 years or so , on a portion ?
Discussions should be conducted without fondness for dispute or desire for victory. - Benjamin Franklin
bongo
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Re: I-bonds, "tax bomb"; & ACA APTCs for age 58 retiree

Post by bongo »

elpollo wrote: Fri Apr 05, 2024 2:29 pm If you know something different , please send me a reference :) :happy

4) since regular money market or short term treasuries are paying close to 5%, maybe it isn't such a sacrifice to not make the 6-7% for 5 years or so , on a portion ?
no, I don't know of any way to escape paying taxes you legitimately owe. I was just replying to the person who said they wouldn't want to give up the remaining years of such a high paying ibond.

If you don't actually care about losing the interest, then selling vs transferring isn't a big deal for you - you can recognize the interest in both cases right away and smooth out your income. Seems worth doing if you know it'll avoid the obamacare cliff later.
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