I Bond Sell Strategy

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#Cruncher
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Re: I Bond Sell Strategy

Post by #Cruncher »

To implement a sell strategy we need to estimate what the gains will be upon redemption. For those familiar with Excel, I've put together a procedure to help with this. First here is an example for someone who bought $10,000 of I Bonds six times from November 1998 through February 2001. With 2% assumed future inflation, the estimated redemption value of the six I Bonds is $310,000 or a taxable gain of $250,000 spread over the four years 2028 through 2031.

Code: Select all

Row       Col A    Col B  Col C   Col D   Col E    Col F Col G  Col H  Col I    Col J    Col K
  1  Last rates  11/2020 (month latest rates were announced)
  2  Future CPI     2.0%
  3                 Face  Fixed     Now                        Remain   Comp    Grows         
  4      Bought    Value   Rate   Worth   As of  Matures  Year   Life   Rate       To     Gain
        -------    -----  -----  ------  ------  -------  ----   ----  -----   ------   ------
  5     11/1998   10,000   3.3%  33,952  5/2021  11/2028  2028    7.5  5.33%   50,373   40,373
  6      5/1999   10,000   3.3%  33,104  5/2021   5/2029  2029    8.0  5.33%   50,424   40,424
  7     11/1999   10,000   3.4%  32,936  5/2021  11/2029  2029    8.5  5.43%   51,933   41,933
  8      2/2000   10,000   3.4%  32,936  8/2021   2/2030  2030    8.5  5.43%   51,933   41,933
  9      8/2000   10,000   3.6%  33,148  8/2021   8/2030  2030    9.0  5.64%   54,683   44,683
 10      2/2001   10,000   3.4%  30,716  8/2021   2/2031  2031    9.5  5.43%   51,099   41,099
                  ------                                                      -------  -------
 11       Total   60,000                                                      310,445  250,445

Code: Select all

Row       Col A    Col B  Col C   Col D   Col E    Col F Col G  Col H  Col I    Col J    Col K
 12               10,000                                  2028                 50,373   40,373
 13               20,000                                  2029                102,357   82,357
 14               20,000                                  2030                106,616   86,616
 15               10,000                                  2031                 51,099   41,099
                  ------                                                      -------  -------
 16       Total   60,000                                                      310,445  250,445
To use the spreadsheet, follow these steps:
  • Select All, Copy, and Paste [1] the following at cell A1 of a blank Excel sheet:

    Code: Select all

    Last rates	44136
    Future CPI	0.02
    	Face	Fixed	Now				Remain	Comp	Grows
    Bought	Value	Rate	Worth	As of	Matures	Year	Life	Rate	To	Gain
    36100	10000	0.033	33952	=DATE(YEAR(B$1),MONTH(B$1)+6+MOD(MONTH(A5),6)-MOD(MONTH(B$1),6)+IF(MOD(MONTH(A5),6)<5,6,0),DAY(B$1))	=DATE(YEAR(A5)+30,MONTH(A5),DAY(A5))	=YEAR(F5)	=YEAR(F5)-YEAR(E5)+(MONTH(F5)-MONTH(E5))/12	=ROUND(C5+B$2+C5*(B$2/2),4)	=ROUND(D5*(1+I5/2)^(H5*2),0)	=J5-B5
  • Format for readability, especially cells B1, A5, E5, and F5 as dates.
  • Use my I Bond Portfolio Calculator Excel workbook to determine the value of each of your I Bonds as of the latest month.
  • Copy the values from the Portfolio Calculator into columns A, B, C, and D starting in row 5. [2]
  • Copy the formulas in cells E5:K5 down to the bottom row.
  • Calculate the totals by year using the Excel SUMIF function. For the example above, here it is in cell B12. It is copied to B13:B15 and J12:K15.
    10,000 = SUMIF($G$5:$G$10, $G12, B$5:B$10)
  1. If you have trouble pasting, try "Paste Special" and "Text".
  2. Columns A:C can be pasted directly from the same columns in the Portfolio Calculator. But the values for column D should be pasted from the "latest month" in the Portfolio Calculator, which is the right-most column shown in black. This will probably not be the same column for every I Bond. Alternatively you can get the values for columns A:D one-by-one from my Growth of I Bond Value website if each I Bond is one of the nine denominations shown.
Last edited by #Cruncher on Thu Apr 01, 2021 8:33 pm, edited 1 time in total.
whomever
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Re: I Bond Sell Strategy

Post by whomever »

If one is concerned about the looming tax bill for deferred income, wouldn't it be better to just declare the interest to date rather than cash them in prematurely? You would have the same tax payment as cashing the in, but you could keep collecting the sweet 4% return?????
Thesaints
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Re: I Bond Sell Strategy

Post by Thesaints »

whomever wrote: Thu Apr 01, 2021 5:43 pm If one is concerned about the looming tax bill for deferred income, wouldn't it be better to just declare the interest to date rather than cash them in prematurely? You would have the same tax payment as cashing the in, but you could keep collecting the sweet 4% return?????
Good point. I might have read that for each bond either one declares annually, or all together, and declaring irregularly is not an option. Not sure about that though.
Mitchell777
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Re: I Bond Sell Strategy

Post by Mitchell777 »

clcarter wrote: Tue Mar 30, 2021 7:04 pm I wonder if some with large holdings still have paper bonds or have they been confident enough to converted to electronic at Treasury Direct?
I have paper EE bonds maturing each month. My bank, along with some others in my area, have stopped redeeming them. Fortunately, some credit unions in my area seem to still be offering redemptions, at least for now. The monthly stream ends in a couple years but then I have EE and I bond redemptions over the following 10 years but not each month and in much larger denominations. I'll see what happens with redemptions at financial institutions in future years.
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Mel Lindauer
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Re: I Bond Sell Strategy

Post by Mel Lindauer »

whomever wrote: Thu Apr 01, 2021 5:43 pm If one is concerned about the looming tax bill for deferred income, wouldn't it be better to just declare the interest to date rather than cash them in prematurely? You would have the same tax payment as cashing the in, but you could keep collecting the sweet 4% return?????
The idea of spreading the redemptions out over a number of years is to avoid a huge tax hit in any given year. In my case, declaring all the interest-to-date on a 26-27-28 or 29-year old group of EE Bonds would not be a wise move since it would result in a huge tax increase in that year.

Also not a wise move for someone who owns a large amount of oder I Bonds, since that would also result in a huge tax hit in the year of the switch.
Best Regards - Mel | | Semper Fi
Thesaints
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Re: I Bond Sell Strategy

Post by Thesaints »

Mel Lindauer wrote: Thu Apr 01, 2021 6:10 pm
whomever wrote: Thu Apr 01, 2021 5:43 pm If one is concerned about the looming tax bill for deferred income, wouldn't it be better to just declare the interest to date rather than cash them in prematurely? You would have the same tax payment as cashing the in, but you could keep collecting the sweet 4% return?????
The idea of spreading the redemptions out over a number of years is to avoid a huge tax hit in any given year. In my case, declaring all the interest-to-date on a 26-27-28 or 29-year old group of EE Bonds would not be a wise move since it would result in a huge tax increase in that year.

Also not a wise move for someone who owns a large amount of oder I Bonds, since that would also result in a huge tax hit in the year of the switch.
Qualify "huge". I think one can reasonably try to avoid hitting one of those large steps in the brackets structure (12 to 22, 24 to 32), but taxes must be paid. Makes no difference to pay 24% on all the whole amount on year 30, or 24% on one third of the amount on years 28,29 and 30 respectively.
In fact, the first solution is likely a little better.
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ascenzm
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Re: I Bond Sell Strategy

Post by ascenzm »

Gill wrote: Tue Mar 30, 2021 4:01 pm
Thesaints wrote: Tue Mar 30, 2021 3:55 pm Yours is an extreme case. Most of those who hold savings bonds do not have to do nothing.
You haven't been around this board very long but I know you would find there are many here who bought $30,000 of I-Bonds in 2000, many who bought $60,000 for a couple. Thanks for the tax advice. :happy I'm happy to know there are many who "do not have to do nothing".
Gill
It is Mel's fault. :D He advised people to back up the truck and load it with the 3-3.6% fixed rate I bonds 20 years ago and a lot of us followed his advice. I purchased $30,000 of 3% I bonds in 2001 using my Discover card and earned $300 in Discover rewards. I saw the title of this thread and had to read it because I'll be facing the redemption issue starting in 2031.
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jason2459
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Re: I Bond Sell Strategy

Post by jason2459 »

Boy am I so glad to not have to deal with those horrible high interest rates and extra money. :mrgreen:
"In the short run, the stock market is a voting machine; in the long run, it is a weighing machine" ~Benjamin Graham
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Re: I Bond Sell Strategy

Post by TheGreyingDuke »

mokaThought wrote: Sun Mar 28, 2021 10:46 pm I had this glorious thought of grandparents dedicating some or all of their I-bond returns to their grandchildren's educational expenses. Alas per https://www.treasurydirect.gov/indiv/pl ... cation.htm:
You can take the exclusion if all five of the following apply:

* You cashed qualified U.S. savings bonds in the same tax year for which you are claiming the exclusion.
* You paid qualified higher education expenses in that same tax year for yourself, your spouse, or your dependents.
* Your filing status is any status except married filing separately.
* Your modified adjusted gross income was less than the cut-off amount set by the Internal Revenue Service. This amount typically changes every year. See IRS Form 8815 for the current amount.
* You were 24 or older before your savings bonds were issued.
But you can contribute them to a 529 account of which you (or spouse or dependent) need to be the beneficiary. There is space on the IRS 8815 to make the declaration. Once the money has been deposited you can then change the benficiary.
"Every time I see an adult on a bicycle, I no longer despair for the future of the human race." H.G. Wells
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Mel Lindauer
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Re: I Bond Sell Strategy

Post by Mel Lindauer »

TheGreyingDuke wrote: Thu Apr 01, 2021 8:40 pm
mokaThought wrote: Sun Mar 28, 2021 10:46 pm I had this glorious thought of grandparents dedicating some or all of their I-bond returns to their grandchildren's educational expenses. Alas per https://www.treasurydirect.gov/indiv/pl ... cation.htm:
You can take the exclusion if all five of the following apply:

* You cashed qualified U.S. savings bonds in the same tax year for which you are claiming the exclusion.
* You paid qualified higher education expenses in that same tax year for yourself, your spouse, or your dependents.
* Your filing status is any status except married filing separately.
* Your modified adjusted gross income was less than the cut-off amount set by the Internal Revenue Service. This amount typically changes every year. See IRS Form 8815 for the current amount.
* You were 24 or older before your savings bonds were issued.
But you can contribute them to a 529 account of which you (or spouse or dependent) need to be the beneficiary. There is space on the IRS 8815 to make the declaration. Once the money has been deposited you can then change the benficiary.
Except in rare cases, grandchildren do no qualify as "dependents", so they cannot be used, tax-free for qualifying educational expenses for them, including 529 Plans.
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Mel Lindauer
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Re: I Bond Sell Strategy

Post by Mel Lindauer »

Thesaints wrote: Thu Apr 01, 2021 6:31 pm
Mel Lindauer wrote: Thu Apr 01, 2021 6:10 pm
whomever wrote: Thu Apr 01, 2021 5:43 pm If one is concerned about the looming tax bill for deferred income, wouldn't it be better to just declare the interest to date rather than cash them in prematurely? You would have the same tax payment as cashing the in, but you could keep collecting the sweet 4% return?????
The idea of spreading the redemptions out over a number of years is to avoid a huge tax hit in any given year. In my case, declaring all the interest-to-date on a 26-27-28 or 29-year old group of EE Bonds would not be a wise move since it would result in a huge tax increase in that year.

Also not a wise move for someone who owns a large amount of oder I Bonds, since that would also result in a huge tax hit in the year of the switch.
Qualify "huge". I think one can reasonably try to avoid hitting one of those large steps in the brackets structure (12 to 22, 24 to 32), but taxes must be paid. Makes no difference to pay 24% on all the whole amount on year 30, or 24% on one third of the amount on years 28,29 and 30 respectively.
In fact, the first solution is likely a little better.
We're talking about hundreds of thousands. Back in the days of the high fixed I Bond rates, you could buy $30k for a husband, $30k for a wife and possibly even for $30k for your kids. And, over the years, continued buying could mean some folks are sitting on a million or more.

Secondly, the object of redeeming them over a period of time instead of all at once is to avoid bumping up into a higher tax bracket and possibly also getting hit with the higher SS tax.
Best Regards - Mel | | Semper Fi
tfunk
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Re: I Bond Sell Strategy

Post by tfunk »

ascenzm wrote: Thu Apr 01, 2021 8:18 pm
Gill wrote: Tue Mar 30, 2021 4:01 pm
Thesaints wrote: Tue Mar 30, 2021 3:55 pm Yours is an extreme case. Most of those who hold savings bonds do not have to do nothing.
You haven't been around this board very long but I know you would find there are many here who bought $30,000 of I-Bonds in 2000, many who bought $60,000 for a couple. Thanks for the tax advice. :happy I'm happy to know there are many who "do not have to do nothing".
Gill
It is Mel's fault. :D He advised people to back up the truck and load it with the 3-3.6% fixed rate I bonds 20 years ago and a lot of us followed his advice. I purchased $30,000 of 3% I bonds in 2001 using my Discover card and earned $300 in Discover rewards. I saw the title of this thread and had to read it because I'll be facing the redemption issue starting in 2031.

I backed up the truck in 2000 after listening to Bob Brinker's "Moneytalk" I know he is a controversial figure now because of his bad call on the NASDQ. Fortunately I have made more on my I-Bonds than I lost on my QQQ's.
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Re: I Bond Sell Strategy

Post by Thesaints »

Mel Lindauer wrote: Thu Apr 01, 2021 8:55 pm We're talking about hundreds of thousands. Back in the days of the high fixed I Bond rates, you could buy $30k for a husband, $30k for a wife and possibly even for $30k for your kids. And, over the years, continued buying could mean some folks are sitting on a million or more.
That might be, but "over the years" means the million is not taxable all in the same year.
Larger holdings bought as a couple enjoy the proportionally larger married brackets and the kids not are over 30yo and responsible to pay taxes on their own savings bonds.
Secondly, the object of redeeming them over a period of time instead of all at once is to avoid bumping up into a higher tax bracket and possibly also getting hit with the higher SS tax.
That's what I wrote. Particular attention should be devoted to avoiding the larger steps 12% to 22% and 24% to 32%, as well as to extra income from savings bonds that makes us lose on deductions and such.

Does anyone remember if it is possible to pay taxes on accumulated interest and then start a new accumulation, or is it that as soon as one pays taxes, going forward one has to pay annually ?
calwatch
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Re: I Bond Sell Strategy

Post by calwatch »

https://www.treasurydirect.gov/indiv/re ... nsider.htm
You may, however, choose to report the interest every year.

You may, for example, find it advantageous to report interest every year on savings bonds in a child's name. The child may be paying taxes at a lower rate than will be true years later when the bond matures.

Note: You (or the child if a bond is in the child's name) do not actually receive the interest every year even if you report it that way. The interest that the bond earns is reported on a 1099-INT after the bond is cashed or is reissued to reflect a taxable change in ownership. The 1099-INT will show all the interest the bond has earned over the years. Go to IRS Publication 550, Investment Income and Expenses, for instructions on how to tell the IRS that you already reported some or all of that interest in earlier years.

Once you start to report the interest every year (for example, for a child in the child's Social Security Number), you must continue to do so every year after that. for all your savings bonds (or, for example, all the child's bonds) and any you acquire (or, the child acquires) in the future.


Interestingly if one does it for their children in the manner shown, it screws them over from taking advantage of tax deferral in the future. I do wonder how a child knows this, if the parents sign the return on their behalf and never tell them they are doing this.
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anon_investor
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Re: I Bond Sell Strategy

Post by anon_investor »

jason2459 wrote: Thu Apr 01, 2021 8:27 pm Boy am I so glad to not have to deal with those horrible high interest rates and extra money. :mrgreen:
Since I only started buying I Bonds last year, I feel like I will never have to worry about them earning too much interest :( .
TheGreyingDuke
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Re: I Bond Sell Strategy

Post by TheGreyingDuke »

Mel Lindauer wrote: Thu Apr 01, 2021 8:52 pm
TheGreyingDuke wrote: Thu Apr 01, 2021 8:40 pm
mokaThought wrote: Sun Mar 28, 2021 10:46 pm I had this glorious thought of grandparents dedicating some or all of their I-bond returns to their grandchildren's educational expenses. Alas per https://www.treasurydirect.gov/indiv/pl ... cation.htm:
You can take the exclusion if all five of the following apply:

* You cashed qualified U.S. savings bonds in the same tax year for which you are claiming the exclusion.
* You paid qualified higher education expenses in that same tax year for yourself, your spouse, or your dependents.
* Your filing status is any status except married filing separately.
* Your modified adjusted gross income was less than the cut-off amount set by the Internal Revenue Service. This amount typically changes every year. See IRS Form 8815 for the current amount.
* You were 24 or older before your savings bonds were issued.
But you can contribute them to a 529 account of which you (or spouse or dependent) need to be the beneficiary. There is space on the IRS 8815 to make the declaration. Once the money has been deposited you can then change the benficiary.
Except in rare cases, grandchildren do no qualify as "dependents", so they cannot be used, tax-free for qualifying educational expenses for them, including 529 Plans.
According to the link, the workaround I described complies with IRS regs and does allow the grandparent to make the tax-free contribution:

https://www.kiplinger.com/article/taxes ... ation.html
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anon_investor
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Re: I Bond Sell Strategy

Post by anon_investor »

TheGreyingDuke wrote: Fri Apr 02, 2021 6:41 am
Mel Lindauer wrote: Thu Apr 01, 2021 8:52 pm
TheGreyingDuke wrote: Thu Apr 01, 2021 8:40 pm
mokaThought wrote: Sun Mar 28, 2021 10:46 pm I had this glorious thought of grandparents dedicating some or all of their I-bond returns to their grandchildren's educational expenses. Alas per https://www.treasurydirect.gov/indiv/pl ... cation.htm:
You can take the exclusion if all five of the following apply:

* You cashed qualified U.S. savings bonds in the same tax year for which you are claiming the exclusion.
* You paid qualified higher education expenses in that same tax year for yourself, your spouse, or your dependents.
* Your filing status is any status except married filing separately.
* Your modified adjusted gross income was less than the cut-off amount set by the Internal Revenue Service. This amount typically changes every year. See IRS Form 8815 for the current amount.
* You were 24 or older before your savings bonds were issued.
But you can contribute them to a 529 account of which you (or spouse or dependent) need to be the beneficiary. There is space on the IRS 8815 to make the declaration. Once the money has been deposited you can then change the benficiary.
Except in rare cases, grandchildren do no qualify as "dependents", so they cannot be used, tax-free for qualifying educational expenses for them, including 529 Plans.
According to the link, the workaround I described complies with IRS regs and does allow the grandparent to make the tax-free contribution:

https://www.kiplinger.com/article/taxes ... ation.html
This is pretty slick. Wonder if that helps anyone here.
lightning
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Re: I Bond Sell Strategy

Post by lightning »

Switching to the accrual method for savings bonds purchased circa 2000 is difficult because of 20 years of income coming due all in one year. What if you could split it up by having one spouse go to accrual method one year and the second spouse go to accrual the next year?

What about bonds purchased under a child name as co-owner but with parents funds? The instructions say the parents pay the interest unless the child is listed as the only owner. Would the co-owed bond go with the parent's switch to accrual or could the child separately go to accrual?

The instructions for Savings Bonds says you can return to method 1 after going to method 2 if you attach a note to your tax return requesting permission. I think, however, that once you made the leap to accrual, you should probably stay there.
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Re: I Bond Sell Strategy

Post by jason2459 »

anon_investor wrote: Fri Apr 02, 2021 6:22 am
jason2459 wrote: Thu Apr 01, 2021 8:27 pm Boy am I so glad to not have to deal with those horrible high interest rates and extra money. :mrgreen:
Since I only started buying I Bonds last year, I feel like I will never have to worry about them earning too much interest :( .
I just got to an age milestone this year and started buying I and EE bonds to plan on reduced tax rate once they do mature.
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Re: I Bond Sell Strategy

Post by LadyGeek »

I removed an off-topic post. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters.
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anon_investor
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Re: I Bond Sell Strategy

Post by anon_investor »

jason2459 wrote: Fri Apr 02, 2021 8:22 am
anon_investor wrote: Fri Apr 02, 2021 6:22 am
jason2459 wrote: Thu Apr 01, 2021 8:27 pm Boy am I so glad to not have to deal with those horrible high interest rates and extra money. :mrgreen:
Since I only started buying I Bonds last year, I feel like I will never have to worry about them earning too much interest :( .
I just got to an age milestone this year and started buying I and EE bonds to plan on reduced tax rate once they do mature.
I plan on retiring early in less than 20 years (spouse isn't working), so we will have plenty of time to think about redeeming our I Bonds early if necessary. However, with only 0.2% fixed on our 2020 purchases and likely 0% fixed for 2021 and beyond, I can't see how we would have to worry about much taxable growth since we are only buying at most $20k/yr.

EE Bonds are still not appealing to me, for effectively a 20 year lock up, I would rather just buy VTSAX. I Bond just seem a lot more flexible than EE Bonds. Maybe a different story if I had $40/yr to spend on after-tax fixed income products.
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Re: I Bond Sell Strategy

Post by glock19 »

This may be a little off topic, but many have bought I bonds in both husband's and wife's name. Within the last couple of years there was a thread on this forum regarding the redemption or change of registration in the event of the death of a spouse.

If anyone could address this issue, or direct me to that thread I would appreciate it. A search yielded no results.

I feel this may be an unfortunate issue in the future as just continuing to hold the bonds in their current registration is not possible (if I recall correctly).
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jason2459
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Re: I Bond Sell Strategy

Post by jason2459 »

anon_investor wrote: Fri Apr 02, 2021 9:55 am
jason2459 wrote: Fri Apr 02, 2021 8:22 am
anon_investor wrote: Fri Apr 02, 2021 6:22 am
jason2459 wrote: Thu Apr 01, 2021 8:27 pm Boy am I so glad to not have to deal with those horrible high interest rates and extra money. :mrgreen:
Since I only started buying I Bonds last year, I feel like I will never have to worry about them earning too much interest :( .
I just got to an age milestone this year and started buying I and EE bonds to plan on reduced tax rate once they do mature.
I plan on retiring early in less than 20 years (spouse isn't working), so we will have plenty of time to think about redeeming our I Bonds early if necessary. However, with only 0.2% fixed on our 2020 purchases and likely 0% fixed for 2021 and beyond, I can't see how we would have to worry about much taxable growth since we are only buying at most $20k/yr.

EE Bonds are still not appealing to me, for effectively a 20 year lock up, I would rather just buy VTSAX. I Bond just seem a lot more flexible than EE Bonds. Maybe a different story if I had $40/yr to spend on after-tax fixed income products.
Yeah, my tax advantaged space is fully maxed.
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TheGreyingDuke
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Re: I Bond Sell Strategy

Post by TheGreyingDuke »

glock19 wrote: Fri Apr 02, 2021 9:56 am This may be a little off topic, but many have bought I bonds in both husband's and wife's name. Within the last couple of years there was a thread on this forum regarding the redemption or change of registration in the event of the death of a spouse.

If anyone could address this issue, or direct me to that thread I would appreciate it. A search yielded no results.

I feel this may be an unfortunate issue in the future as just continuing to hold the bonds in their current registration is not possible (if I recall correctly).
All the forms needed are here:
https://www.treasurydirect.gov/indiv/fo ... sBonds.htm
Note that any change in the registration will require a medallion guarantee. There are some circumstances where you can deposit them in a linked account. I have some bonds in my name and some that are Deceased Mother's name OR TheGreyingDuke and they can go into my account.
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anon_investor
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Re: I Bond Sell Strategy

Post by anon_investor »

jason2459 wrote: Fri Apr 02, 2021 10:17 am
anon_investor wrote: Fri Apr 02, 2021 9:55 am
jason2459 wrote: Fri Apr 02, 2021 8:22 am
anon_investor wrote: Fri Apr 02, 2021 6:22 am
jason2459 wrote: Thu Apr 01, 2021 8:27 pm Boy am I so glad to not have to deal with those horrible high interest rates and extra money. :mrgreen:
Since I only started buying I Bonds last year, I feel like I will never have to worry about them earning too much interest :( .
I just got to an age milestone this year and started buying I and EE bonds to plan on reduced tax rate once they do mature.
I plan on retiring early in less than 20 years (spouse isn't working), so we will have plenty of time to think about redeeming our I Bonds early if necessary. However, with only 0.2% fixed on our 2020 purchases and likely 0% fixed for 2021 and beyond, I can't see how we would have to worry about much taxable growth since we are only buying at most $20k/yr.

EE Bonds are still not appealing to me, for effectively a 20 year lock up, I would rather just buy VTSAX. I Bond just seem a lot more flexible than EE Bonds. Maybe a different story if I had $40/yr to spend on after-tax fixed income products.
Yeah, my tax advantaged space is fully maxed.
Me too, I just don't have that much after-tax funds for fixed income after maxing $20k I Bonds, 2x backdoor Roth IRA, family HSA, and 401k + mega backdoor Roth. I instead buy VTSAX in my taxable instead of EE Bonds.
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Mel Lindauer
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Re: I Bond Sell Strategy

Post by Mel Lindauer »

TheGreyingDuke wrote: Fri Apr 02, 2021 6:41 am
Mel Lindauer wrote: Thu Apr 01, 2021 8:52 pm
TheGreyingDuke wrote: Thu Apr 01, 2021 8:40 pm
mokaThought wrote: Sun Mar 28, 2021 10:46 pm I had this glorious thought of grandparents dedicating some or all of their I-bond returns to their grandchildren's educational expenses. Alas per https://www.treasurydirect.gov/indiv/pl ... cation.htm:
You can take the exclusion if all five of the following apply:

* You cashed qualified U.S. savings bonds in the same tax year for which you are claiming the exclusion.
* You paid qualified higher education expenses in that same tax year for yourself, your spouse, or your dependents.
* Your filing status is any status except married filing separately.
* Your modified adjusted gross income was less than the cut-off amount set by the Internal Revenue Service. This amount typically changes every year. See IRS Form 8815 for the current amount.
* You were 24 or older before your savings bonds were issued.
But you can contribute them to a 529 account of which you (or spouse or dependent) need to be the beneficiary. There is space on the IRS 8815 to make the declaration. Once the money has been deposited you can then change the benficiary.
Except in rare cases, grandchildren do no qualify as "dependents", so they cannot be used, tax-free for qualifying educational expenses for them, including 529 Plans.
According to the link, the workaround I described complies with IRS regs and does allow the grandparent to make the tax-free contribution:

https://www.kiplinger.com/article/taxes ... ation.html
While it may sound like a "clever workaround", I don't think this will pass the IRS smell test. Folks need to read up on the IRS treatment of step transactions (the Doctrine) and then decide for themselves. It doesn't pay to try to outsmart the IRS when you don't know all the rules. Just because you read something in a magazine doesn't mean it trumps the IRS.

https://www.google.com/search?q=step+tr ... e&ie=UTF-8
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Re: I Bond Sell Strategy

Post by #Cruncher »

Mel Lindauer wrote: Thu Apr 01, 2021 8:55 pmWe're talking about hundreds of thousands. Back in the days of the high fixed I Bond rates, you could buy $30k for a husband, $30k for a wife ... over the years, continued buying could mean some folks are sitting on a million or more.
I believe the $30,000 limit was lowered beginning 2008. A married couple could therefore have purchased $600,000 face value over the ten years from when I Bonds were first issued in 1998. Depending on the purchase months these could have grown to a current value approaching $1.4 million. If future inflation averages 2%, this could grow to $2.1 million by the 30-year maturity. The couple would then have to pay tax on ordinary income of $1.5 million over the years 2028 through 2037.

Code: Select all

  2            Face           Now      Grows           
  3   Year    Value         Worth         To       Gain
  4    Sum  600,000  1,371,456.00  2,141,915  1,541,915
  5   2028   60,000    208,188.00    305,837    245,837
  6   2029   60,000    198,120.00    307,073    247,073
  7   2030   60,000    191,592.00    317,346    257,346
  8   2031   60,000    149,184.00    236,879    176,879
  9   2032   60,000    124,980.00    191,322    131,322
 10   2033   60,000    106,644.00    155,629     95,629
 11   2034   60,000    101,772.00    151,192     91,192
 12   2035   60,000     99,480.00    154,417     94,417
 13   2036   60,000     98,484.00    164,931    104,931
 14   2037   60,000     93,012.00    157,289     97,289
Here are the assumed purchases that add up to these values:

Code: Select all

  4  Last rates  11/2020
  5  Future CPI     2.0%
  6                 Face  Fixed           Now                        Remain   Comp      Grows           
  7      Bought    Value   Rate         Worth   As of  Matures  Year   Life   Rate         To       Gain
  8         Sum  600,000         1,371,456.00                                       2,141,915  1,541,915

Code: Select all

  9      9/1998   30,000   3.4%    106,332.00  9/2021   9/2028  2028    7.0  5.43%    154,717    124,717
 10     11/1998   30,000   3.3%    101,856.00  5/2021  11/2028  2028    7.5  5.33%    151,120    121,120
 11      5/1999   30,000   3.3%     99,312.00  5/2021   5/2029  2029    8.0  5.33%    151,273    121,273
 12     11/1999   30,000   3.4%     98,808.00  5/2021  11/2029  2029    8.5  5.43%    155,800    125,800
 13      5/2000   30,000   3.6%     99,444.00  5/2021   5/2030  2030    9.0  5.64%    164,050    134,050
 14     11/2000   30,000   3.4%     92,148.00  5/2021  11/2030  2030    9.5  5.43%    153,296    123,296
 15      5/2001   30,000   3.0%     82,644.00  5/2021   5/2031  2031   10.0  5.03%    135,819    105,819
 16     11/2001   30,000   2.0%     66,540.00  5/2021  11/2031  2031   10.5  4.02%    101,060     71,060
 17      5/2002   30,000   2.0%     65,112.00  5/2021   5/2032  2032   11.0  4.02%    100,879     70,879
 18     11/2002   30,000   1.6%     59,868.00  5/2021  11/2032  2032   11.5  3.62%     90,443     60,443
 19      5/2003   30,000   1.1%     53,976.00  5/2021   5/2033  2033   12.0  3.11%     78,169     48,169
 20     11/2003   30,000   1.1%     52,668.00  5/2021  11/2033  2033   12.5  3.11%     77,460     47,460
 21      5/2004   30,000   1.0%     51,348.00  5/2021   5/2034  2034   13.0  3.01%     75,718     45,718
 22     11/2004   30,000   1.0%     50,424.00  5/2021  11/2034  2034   13.5  3.01%     75,474     45,474
 23      5/2005   30,000   1.2%     51,048.00  5/2021   5/2035  2035   14.0  3.21%     79,726     49,726
 24     11/2005   30,000   1.0%     48,432.00  5/2021  11/2035  2035   14.5  3.01%     74,691     44,691
 25      5/2006   30,000   1.4%     49,500.00  5/2021   5/2036  2036   15.0  3.41%     82,200     52,200
 26     11/2006   30,000   1.4%     48,984.00  5/2021  11/2036  2036   15.5  3.41%     82,731     52,731
 27      5/2007   30,000   1.3%     47,220.00  5/2021   5/2037  2037   16.0  3.31%     79,845     49,845
 28     11/2007   30,000   1.2%     45,792.00  5/2021  11/2037  2037   16.5  3.21%     77,444     47,444
For anyone wishing to do this calculation for their own I Bond holdings, I've added two sheets that will do this to my I Bond Portfolio Calculator Excel workbook. (The two tables above come from those two new sheets.) This is easier than the method I proposed in my previous post.
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Re: I Bond Sell Strategy

Post by Thesaints »

#Cruncher wrote: Sat Apr 03, 2021 1:54 pm If future inflation averages 2%, this could grow to $2.1 million by the 30-year maturity. The couple would then have to pay tax on ordinary income of $1.5 million over the years 2028 through 2037.
Which is an average of 150k per year, with MFJ tax brackets.
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Mel Lindauer
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Re: I Bond Sell Strategy

Post by Mel Lindauer »

#Cruncher wrote: Sat Apr 03, 2021 1:54 pm
Mel Lindauer wrote: Thu Apr 01, 2021 8:55 pmWe're talking about hundreds of thousands. Back in the days of the high fixed I Bond rates, you could buy $30k for a husband, $30k for a wife ... over the years, continued buying could mean some folks are sitting on a million or more.
I believe the $30,000 limit was lowered beginning 2008. A married couple could therefore have purchased $600,000 face value over the ten years from when I Bonds were first issued in 1998. Depending on the purchase months these could have grown to a current value approaching $1.4 million. If future inflation averages 2%, this could grow to $2.1 million by the 30-year maturity. The couple would then have to pay tax on ordinary income of $1.5 million over the years 2028 through 2037.

Code: Select all

  2            Face           Now      Grows           
  3   Year    Value         Worth         To       Gain
  4    Sum  600,000  1,371,456.00  2,141,915  1,541,915
  5   2028   60,000    208,188.00    305,837    245,837
  6   2029   60,000    198,120.00    307,073    247,073
  7   2030   60,000    191,592.00    317,346    257,346
  8   2031   60,000    149,184.00    236,879    176,879
  9   2032   60,000    124,980.00    191,322    131,322
 10   2033   60,000    106,644.00    155,629     95,629
 11   2034   60,000    101,772.00    151,192     91,192
 12   2035   60,000     99,480.00    154,417     94,417
 13   2036   60,000     98,484.00    164,931    104,931
 14   2037   60,000     93,012.00    157,289     97,289
Here are the assumed purchases that add up to these values:

Code: Select all

  4  Last rates  11/2020
  5  Future CPI     2.0%
  6                 Face  Fixed           Now                        Remain   Comp      Grows           
  7      Bought    Value   Rate         Worth   As of  Matures  Year   Life   Rate         To       Gain
  8         Sum  600,000         1,371,456.00                                       2,141,915  1,541,915

Code: Select all

  9      9/1998   30,000   3.4%    106,332.00  9/2021   9/2028  2028    7.0  5.43%    154,717    124,717
 10     11/1998   30,000   3.3%    101,856.00  5/2021  11/2028  2028    7.5  5.33%    151,120    121,120
 11      5/1999   30,000   3.3%     99,312.00  5/2021   5/2029  2029    8.0  5.33%    151,273    121,273
 12     11/1999   30,000   3.4%     98,808.00  5/2021  11/2029  2029    8.5  5.43%    155,800    125,800
 13      5/2000   30,000   3.6%     99,444.00  5/2021   5/2030  2030    9.0  5.64%    164,050    134,050
 14     11/2000   30,000   3.4%     92,148.00  5/2021  11/2030  2030    9.5  5.43%    153,296    123,296
 15      5/2001   30,000   3.0%     82,644.00  5/2021   5/2031  2031   10.0  5.03%    135,819    105,819
 16     11/2001   30,000   2.0%     66,540.00  5/2021  11/2031  2031   10.5  4.02%    101,060     71,060
 17      5/2002   30,000   2.0%     65,112.00  5/2021   5/2032  2032   11.0  4.02%    100,879     70,879
 18     11/2002   30,000   1.6%     59,868.00  5/2021  11/2032  2032   11.5  3.62%     90,443     60,443
 19      5/2003   30,000   1.1%     53,976.00  5/2021   5/2033  2033   12.0  3.11%     78,169     48,169
 20     11/2003   30,000   1.1%     52,668.00  5/2021  11/2033  2033   12.5  3.11%     77,460     47,460
 21      5/2004   30,000   1.0%     51,348.00  5/2021   5/2034  2034   13.0  3.01%     75,718     45,718
 22     11/2004   30,000   1.0%     50,424.00  5/2021  11/2034  2034   13.5  3.01%     75,474     45,474
 23      5/2005   30,000   1.2%     51,048.00  5/2021   5/2035  2035   14.0  3.21%     79,726     49,726
 24     11/2005   30,000   1.0%     48,432.00  5/2021  11/2035  2035   14.5  3.01%     74,691     44,691
 25      5/2006   30,000   1.4%     49,500.00  5/2021   5/2036  2036   15.0  3.41%     82,200     52,200
 26     11/2006   30,000   1.4%     48,984.00  5/2021  11/2036  2036   15.5  3.41%     82,731     52,731
 27      5/2007   30,000   1.3%     47,220.00  5/2021   5/2037  2037   16.0  3.31%     79,845     49,845
 28     11/2007   30,000   1.2%     45,792.00  5/2021  11/2037  2037   16.5  3.21%     77,444     47,444
For anyone wishing to do this calculation for their own I Bond holdings, I've added two sheets that will do this to my I Bond Portfolio Calculator Excel workbook. (The two tables above come from those two new sheets.) This is easier than the method I proposed in my previous post.
Thanks for that and for all your valuable contributions. I just wanted to let you know that I'm a big fan of you and your amazing work.
Best Regards - Mel | | Semper Fi
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Re: I Bond Sell Strategy

Post by Broken Man 1999 »

I-bond inventories can easily be updated via TD. For paper bonds you build your inventory once, save it, and update when you want to do so. Easy as can be. The only date you have to enter is the date of the valuation report. Once the date is given, your report updates in a flash. Very comprehensive.

I was all ready to convert my paper bonds to electronic bonds with TD because I was updating it infrequently due to loading the inventory at TD each time. I had trouble saving the inventory, and updating it. I tried one last time to save my inventory at TD and the last time was a charm.

Once I read the instructions completely, it was a very simple activity. :oops:

Now, each month I sign into TD, open up my saved local file, select and the inventory is updated updated in a flash. It is as simple as retrieving my last report while TD is open, and choosing the update date.

Broken Man 1999
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Mel Lindauer
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Re: I Bond Sell Strategy

Post by Mel Lindauer »

Broken Man 1999 wrote: Sun Apr 04, 2021 4:18 pm I-bond inventories can easily be updated via TD. For paper bonds you build your inventory once, save it, and update when you want to do so. Easy as can be. The only date you have to enter is the date of the valuation report. Once the date is given, your report updates in a flash. Very comprehensive.

I was all ready to convert my paper bonds to electronic bonds with TD because I was updating it infrequently due to loading the inventory at TD each time. I had trouble saving the inventory, and updating it. I tried one last time to save my inventory at TD and the last time was a charm.

Once I read the instructions completely, it was a very simple activity. :oops:

Now, each month I sign into TD, open up my saved local file, select and the inventory is updated updated in a flash. It is as simple as retrieving my last report while TD is open, and choosing the update date.

Broken Man 1999
It won't save using Chrome, probably the most popular browser. Go figure!
Best Regards - Mel | | Semper Fi
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Re: I Bond Sell Strategy

Post by othermike27 »

Broken Man 1999 wrote: Sun Apr 04, 2021 4:18 pm I-bond inventories can easily be updated via TD. For paper bonds you build your inventory once, save it, and update when you want to do so. Easy as can be. The only date you have to enter is the date of the valuation report. Once the date is given, your report updates in a flash. Very comprehensive.

I was all ready to convert my paper bonds to electronic bonds with TD because I was updating it infrequently due to loading the inventory at TD each time. I had trouble saving the inventory, and updating it. I tried one last time to save my inventory at TD and the last time was a charm.

Once I read the instructions completely, it was a very simple activity. :oops:

Now, each month I sign into TD, open up my saved local file, select and the inventory is updated updated in a flash. It is as simple as retrieving my last report while TD is open, and choosing the update date.

Broken Man 1999
If you are updating the value of a saved inventory of paper I-bonds, you don't even need to sign in on TD. Just double-click on your saved HTML file which opens to the TD webpage with a valuation of your bond inventory that is updated to the current month. Works for me in Firefox. This replaced the "Savings Bond Wizard" application that TD used to offer.

Of course, you still have to log in to see the current value of any electronic bonds you hold, or to conduct any business related to your account.
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Re: I Bond Sell Strategy

Post by Grt2bOutdoors »

Mel Lindauer wrote: Sun Apr 04, 2021 10:23 pm
Broken Man 1999 wrote: Sun Apr 04, 2021 4:18 pm I-bond inventories can easily be updated via TD. For paper bonds you build your inventory once, save it, and update when you want to do so. Easy as can be. The only date you have to enter is the date of the valuation report. Once the date is given, your report updates in a flash. Very comprehensive.

I was all ready to convert my paper bonds to electronic bonds with TD because I was updating it infrequently due to loading the inventory at TD each time. I had trouble saving the inventory, and updating it. I tried one last time to save my inventory at TD and the last time was a charm.

Once I read the instructions completely, it was a very simple activity. :oops:

Now, each month I sign into TD, open up my saved local file, select and the inventory is updated updated in a flash. It is as simple as retrieving my last report while TD is open, and choosing the update date.

Broken Man 1999
It won't save using Chrome, probably the most popular browser. Go figure!
It will with FireFox. I've been using firefox for my saved local file and it works just fine.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
maywood
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Re: I Bond Sell Strategy

Post by maywood »

I will have this nice problem also since we purchased many I bonds in 2001 and 2002. I may refine this later, but my current plan is to, starting a few years beforehand, redeem enough I bonds to take us to the top of the 12% bracket, then redeem the rest in 2031 and 2032. Also either 2031 or 2032 I plan to pair the I bond redemption with a large charitable contribution to our Fidelity Donor-Advised fund, of course we will be itemizing deductions that year and the charitable contribution will offset about half of the I bonds interest. Then we can use the donor-advised funds for many years going forward to direct yearly charitable contributions. You can only deduct charitable contributions up to 50% of AGI for cash contributions and 30% for appreciated securities. I plan to donate highly-appreciated stock funds in our taxable account to the donor-advised fund up to the 30% limit of AGI. Then donate 20% of AGI from cash to bring the total to the 50% limit. If desired, I can then buy back the funds we donated using the proceeds from the I bonds redemption, in effect raising the basis of the funds.

maywood
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Re: I Bond Sell Strategy

Post by sport »

maywood wrote: Thu Apr 22, 2021 4:20 pm I will have this nice problem also since we purchased many I bonds in 2001 and 2002. I may refine this later, but my current plan is to, starting a few years beforehand, redeem enough I bonds to take us to the top of the 12% bracket, then redeem the rest in 2031 and 2032. Also either 2031 or 2032 I plan to pair the I bond redemption with a large charitable contribution to our Fidelity Donor-Advised fund, of course we will be itemizing deductions that year and the charitable contribution will offset about half of the I bonds interest. Then we can use the donor-advised funds for many years going forward to direct yearly charitable contributions. You can only deduct charitable contributions up to 50% of AGI for cash contributions and 30% for appreciated securities. I plan to donate highly-appreciated stock funds in our taxable account to the donor-advised fund up to the 30% limit of AGI. Then donate 20% of AGI from cash to bring the total to the 50% limit. If desired, I can then buy back the funds we donated using the proceeds from the I bonds redemption, in effect raising the basis of the funds.

maywood
Are you considering QCDs as well? They are even better than deductions.
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Re: I Bond Sell Strategy

Post by maywood »

sport wrote: Thu Apr 22, 2021 4:29 pm
maywood wrote: Thu Apr 22, 2021 4:20 pm
Are you considering QCDs as well? They are even better than deductions.
That's a good thought, but in our case our tax-deferred savings is almost all in Roth IRAs.
Also, QCDs cannot be made to donor-advised funds.
protagonist
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Re: I Bond Sell Strategy

Post by protagonist »

Bilbo463 wrote: Sun Mar 28, 2021 6:40 pm I’d like to know if those that own I Bonds have a sell strategy. I’m 73 yo and have a significant amount invested in bonds I purchased back I 1999-2002. I checked recently, and all are earning 4.5% to 5.5%. Not bad for our current low yield environment. I’m looking out to the future and worry a bit about having a big tax bill when these reach full maturity.



wow. 5% real risk free. What a lucky duck you are. The bigger your tax bill, the more money you will have made. Plus if you are in an income tax state you avoid state income tax when you sell.

Sell other things first. Keep the I-bonds as long as you can, and then when you pay your enormous tax bill remember why it is so big. I wish I was in your shoes.
BobbyB
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Re: I Bond Sell Strategy

Post by BobbyB »

So regarding a sell strategy, i.e. not wanting to realize all the deferred interest income at once...

When an I-bond matures, it stops earning interest. But do you have to report all the interest income and pay tax on it in the year that it matures?

If not, would it make sense to hold on to an I-bond after maturity until a future tax year to realize that interest income? Seems like that might be a better strategy than redeeming it early, especially if you're getting 5+%
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Re: I Bond Sell Strategy

Post by sport »

BobbyB wrote: Fri Apr 23, 2021 12:19 pm When an I-bond matures, it stops earning interest. But do you have to report all the interest income and pay tax on it in the year that it matures?
Taxes are due that year whether or not you redeem the bond.
othermike27
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Re: I Bond Sell Strategy

Post by othermike27 »

sport wrote: Fri Apr 23, 2021 12:37 pm
BobbyB wrote: Fri Apr 23, 2021 12:19 pm When an I-bond matures, it stops earning interest. But do you have to report all the interest income and pay tax on it in the year that it matures?
Taxes are due that year whether or not you redeem the bond.
And they also stop earning interest at end of term
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