I Bonds Mega Thread (I Bond Heads Rejoice!)

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
investor2018
Posts: 91
Joined: Thu Nov 29, 2018 5:23 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by investor2018 »

Is there a way to link TreasuryDirect account with NW tracking app such as Personal Capital? I do not see any option in Personal Capital to add TreauryDirect account.
evelynmanley
Posts: 1022
Joined: Tue Sep 21, 2010 9:13 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by evelynmanley »

User avatar
Mel Lindauer
Moderator
Posts: 35757
Joined: Mon Feb 19, 2007 7:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Mel Lindauer »

tibbitts wrote: Tue Oct 26, 2021 1:15 am
Mel Lindauer wrote: Sun Oct 24, 2021 5:51 pm Can you (or anyone else) please explain this paradox? I just don't know what I'm missing, but am open to learning why this happens so often.
My theory is that it's because the IRA contributions limits have grown over time, which the I-bond limits (not to mention purchase terms) have become much more restrictive.
While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
Best Regards - Mel | | Semper Fi
User avatar
HueyLD
Posts: 9782
Joined: Mon Jan 14, 2008 9:30 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by HueyLD »

Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm
tibbitts wrote: Tue Oct 26, 2021 1:15 am
Mel Lindauer wrote: Sun Oct 24, 2021 5:51 pm Can you (or anyone else) please explain this paradox? I just don't know what I'm missing, but am open to learning why this happens so often.
My theory is that it's because the IRA contributions limits have grown over time, which the I-bond limits (not to mention purchase terms) have become much more restrictive.
While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
+100!!!
User avatar
Ice-9
Posts: 1579
Joined: Wed Oct 15, 2008 12:40 pm
Location: MD

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Ice-9 »

investor2018 wrote: Tue Oct 26, 2021 11:57 am Is there a way to link TreasuryDirect account with NW tracking app such as Personal Capital? I do not see any option in Personal Capital to add TreauryDirect account.
I have used Personal Capital since 2014, and similar Yodlee Moneycenter for many years before that, all the while collecting I Bonds in a Treasury Direct account.

Like other financial websites, at various times, Treasury Direct has been technically available in the aggregator sites, then failed after some site update, then back again at a later date. From your question, I'm guessing TD is currently unavailable for linking on Personal Capital?

I suggest that for this one particular website, Treasury Direct, you consider settling for manual updating in Personal Capital rather than trying to have PC automatically retrieve the balance for you. Here's why:

* Even if PC works with TD for a while, then later "breaks," it risks you getting locked out of your account due to some number of failed attempts at logging in. At commercial financial websites, this usually isn't a huge deal. At Treasury Direct, I've read in this forum it can mean running through hoops such as obtaining a medallion guarantee, etc, to restore access to the account. Best to avoid that.

* If all you're investing in at Treasury Direct is savings bonds, the balance only updates once a month anyway. I personally am fine with a manual update 12 times a year, or less if I get lazy.
Last edited by Ice-9 on Tue Oct 26, 2021 12:56 pm, edited 1 time in total.
tibbitts
Posts: 23589
Joined: Tue Feb 27, 2007 5:50 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by tibbitts »

Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm
tibbitts wrote: Tue Oct 26, 2021 1:15 am
Mel Lindauer wrote: Sun Oct 24, 2021 5:51 pm Can you (or anyone else) please explain this paradox? I just don't know what I'm missing, but am open to learning why this happens so often.
My theory is that it's because the IRA contributions limits have grown over time, which the I-bond limits (not to mention purchase terms) have become much more restrictive.
While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
Well, admittedly it is ironic that we complain about the I-bond limit in that most of us are certain to lose to inflation (due to taxes and no educational use) when we buy them today, so we're complaining about not being allowed to lose more money. However I still think it's mostly just an artifact of greater benefits (not just annual limits, but 12-year/17-year EE doubling, and those juicy credit card purchase rebates) being taken away one after the other over the years.
mary1492
Posts: 716
Joined: Thu Oct 17, 2019 3:02 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by mary1492 »

xyzzy
Last edited by mary1492 on Wed Oct 05, 2022 1:26 pm, edited 1 time in total.
tibbitts
Posts: 23589
Joined: Tue Feb 27, 2007 5:50 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by tibbitts »

mary1492 wrote: Tue Oct 26, 2021 1:07 pm
tibbitts wrote: Tue Oct 26, 2021 12:52 pm
Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm
tibbitts wrote: Tue Oct 26, 2021 1:15 am
Mel Lindauer wrote: Sun Oct 24, 2021 5:51 pm Can you (or anyone else) please explain this paradox? I just don't know what I'm missing, but am open to learning why this happens so often.
My theory is that it's because the IRA contributions limits have grown over time, which the I-bond limits (not to mention purchase terms) have become much more restrictive.
While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
Well, admittedly it is ironic that we complain about the I-bond limit in that most of us are certain to lose to inflation (due to taxes and no educational use) when we buy them today, so we're complaining about not being allowed to lose more money. However I still think it's mostly just an artifact of greater benefits (not just annual limits, but 12-year/17-year EE doubling, and those juicy credit card purchase rebates) being taken away one after the other over the years.
That's the wrong way of looking at it. The more correct way is that you would be losing much more by keeping the money in alternative risk equivalent places - like a high yield savings account, CDs, or money market. That's not ironic at all, that's logical.
Since I've sadly given in to buying 0% I-bonds myself obviously I think that's logical, but I still think it's ironic, given that even a couple of years ago I would have said (and did) that buying 0% I-bonds was crazy.
User avatar
Mel Lindauer
Moderator
Posts: 35757
Joined: Mon Feb 19, 2007 7:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Mel Lindauer »

mary1492 wrote: Tue Oct 26, 2021 1:07 pm
tibbitts wrote: Tue Oct 26, 2021 12:52 pm
Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm
tibbitts wrote: Tue Oct 26, 2021 1:15 am
Mel Lindauer wrote: Sun Oct 24, 2021 5:51 pm Can you (or anyone else) please explain this paradox? I just don't know what I'm missing, but am open to learning why this happens so often.
My theory is that it's because the IRA contributions limits have grown over time, which the I-bond limits (not to mention purchase terms) have become much more restrictive.
While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
Well, admittedly it is ironic that we complain about the I-bond limit in that most of us are certain to lose to inflation (due to taxes and no educational use) when we buy them today, so we're complaining about not being allowed to lose more money. However I still think it's mostly just an artifact of greater benefits (not just annual limits, but 12-year/17-year EE doubling, and those juicy credit card purchase rebates) being taken away one after the other over the years.
That's the wrong way of looking at it. The more correct way is that you would be losing much more by keeping the money in alternative risk equivalent places - like a high yield savings account, CDs, or money market. That's not ironic at all, that's logical.
Yep, Mary understands that I Bonds may not be an ideal option, but it's certainly way better than nearly all other safe choices (or should I say "ALL other safe choices"?)
Best Regards - Mel | | Semper Fi
calwatch
Posts: 1431
Joined: Wed Oct 02, 2013 1:48 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by calwatch »

For an upper-middle income single person making $150k, you have $19,500 in a 401k/457, $6,000 in a Roth, $10,000 in I Bonds, and $10,000 in EE Bonds (in that order) of tax advantaged/deferred/free investments which is $45,500 and is a lot of deferral. Add a spouse, or a sole proprietorship account, or tax refunds to the mix and there's even more. The only bond ETFs or funds I hold now are corporate or high yield.
User avatar
grogu
Posts: 258
Joined: Thu Jan 21, 2021 11:36 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by grogu »

Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm
tibbitts wrote: Tue Oct 26, 2021 1:15 am
Mel Lindauer wrote: Sun Oct 24, 2021 5:51 pm Can you (or anyone else) please explain this paradox? I just don't know what I'm missing, but am open to learning why this happens so often.
My theory is that it's because the IRA contributions limits have grown over time, which the I-bond limits (not to mention purchase terms) have become much more restrictive.
While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
I suspect that most people opt for Roth (or backdoor Roth) IRAs, which are far more beneficial than I-bonds.

In any event IRAs, 401ks, and after-tax accounts are all buckets from which you can buy many different types of securities (mutual funds, individual stocks and bonds, etc.). I-bonds are really a specific security or a bucket from which you can buy only a single security (namely I-bonds). Thus, a better, though still flawed, comparison is between, e.g., a particular CD, TIPS, bond, or bond fund (most of which you can buy in an IRA or 401k account) and I-Bonds (which you cannot). Not between I-bonds and IRA accounts. If the only thing I could buy in my 401k this year was $19,500 worth of 5-year CDs, I'd be less enamored with that.
User avatar
ray.james
Posts: 1902
Joined: Tue Jul 19, 2011 4:08 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by ray.james »

calwatch wrote: Tue Oct 26, 2021 1:31 pm For an upper-middle income single person making $150k, you have $19,500 in a 401k/457, $6,000 in a Roth, $10,000 in I Bonds, and $10,000 in EE Bonds (in that order) of tax advantaged/deferred/free investments which is $45,500 and is a lot of deferral. Add a spouse, or a sole proprietorship account, or tax refunds to the mix and there's even more. The only bond ETFs or funds I hold now are corporate or high yield.
If they have Mega backdoor Roth, that is another 25K+ in Roth.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
User avatar
anon_investor
Posts: 15111
Joined: Mon Jun 03, 2019 1:43 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by anon_investor »

ray.james wrote: Tue Oct 26, 2021 2:56 pm
calwatch wrote: Tue Oct 26, 2021 1:31 pm For an upper-middle income single person making $150k, you have $19,500 in a 401k/457, $6,000 in a Roth, $10,000 in I Bonds, and $10,000 in EE Bonds (in that order) of tax advantaged/deferred/free investments which is $45,500 and is a lot of deferral. Add a spouse, or a sole proprietorship account, or tax refunds to the mix and there's even more. The only bond ETFs or funds I hold now are corporate or high yield.
If they have Mega backdoor Roth, that is another 25K+ in Roth.
Don't forget about HSA!
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Grt2bOutdoors »

pasadena wrote: Mon Oct 25, 2021 11:54 pm
tj wrote: Mon Oct 25, 2021 12:44 pm
HueyLD wrote: Mon Oct 25, 2021 12:31 pm
tj wrote: Mon Oct 25, 2021 12:22 pm Welp, apparently I have my Ally Bank linked to TreasuryDirect. was gonna buy 10k today, but I don't keep $$ in Ally. So will transfer $10k to Ally tomorrow, hopefully it can be withdrawn before the end of the month. If not, looks like I'll get 6 months of the 7% rate and then 6 months of the mystery rate.

Also, pick your linked bank account wisely, with the paper form that you have to fill out to change a bank account...it seems like it would be a hassle.
Per ally.com:

“ Standard transfer between an Ally Bank and non-Ally Bank account requested before 1:00 am ET, Monday through Friday

Delivery speed: 3 business days
Funds available: 3rd business day

Next-day transfer between an Ally Bank and non-Ally Bank account requested before 7:30 pm ET, Monday through Friday

Delivery speed: 1business days
Funds available: Next business day”
It was an ACH push from Alliant to Ally. Alliant projects funds available on 10/29. I missed the cut-off to transfer today, so it transfers tomorrow. Funds are often available before Alliant projects they will be at the other bank, though.
I bought i-bonds on 07/29. The funds were debited at Ally on July 30th, but the transaction at TD is dated 07/29. If you buy on Friday, you're good.
Let’s be clear though - the order has to be placed on 10/28 for purchase on 10/29. If you put the order in on 10/29 it will be too late. The next business day will be Monday, November 1st.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Da5id »

grogu wrote: Tue Oct 26, 2021 2:41 pm
Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm
tibbitts wrote: Tue Oct 26, 2021 1:15 am
Mel Lindauer wrote: Sun Oct 24, 2021 5:51 pm Can you (or anyone else) please explain this paradox? I just don't know what I'm missing, but am open to learning why this happens so often.
My theory is that it's because the IRA contributions limits have grown over time, which the I-bond limits (not to mention purchase terms) have become much more restrictive.
While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
I suspect that most people opt for Roth (or backdoor Roth) IRAs, which are far more beneficial than I-bonds.

In any event IRAs, 401ks, and after-tax accounts are all buckets from which you can buy many different types of securities (mutual funds, individual stocks and bonds, etc.). I-bonds are really a specific security or a bucket from which you can buy only a single security (namely I-bonds). Thus, a better, though still flawed, comparison is between, e.g., a particular CD, TIPS, bond, or bond fund (most of which you can buy in an IRA or 401k account) and I-Bonds (which you cannot). Not between I-bonds and IRA accounts. If the only thing I could buy in my 401k this year was $19,500 worth of 5-year CDs, I'd be less enamored with that.
I'm in early retirement, mid 50s. Can't contribute to Roth or 401k. My tax bracket is currently really high due to some inherited IRA RMDs over the next 5 years. I bonds are great for me as far as I can tell. They expand my tax deferred space at a time at which my tax rate is high and my space for bonds in tax deferred is otherwise shrinking due to those RMDs.

I-bonds aren't for everyone. But they are IMO useful and in the short term quite high yielding relative to the comparable investments.
Nowizard
Posts: 4827
Joined: Tue Oct 23, 2007 5:33 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Nowizard »

Is there any information about whether IBonds actually keep up with inflation? The metrics used to determine figures for inflation and IBond interest rates are questionably underestimates of actual inflation other than for items in their equation, aren't they?

Tim
mikejuss
Posts: 2749
Joined: Tue Jun 23, 2020 1:36 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by mikejuss »

Nowizard wrote: Tue Oct 26, 2021 5:29 pm Is there any information about whether IBonds actually keep up with inflation? The metrics used to determine figures for inflation and IBond interest rates are questionably underestimates of actual inflation other than for items in their equation, aren't they?

Tim
According to TreasuryDirect.com, an iBond "earns interest based on combining a fixed rate and an inflation rate." Are you saying that the inflation portion of that equation doesn't match real-world inflation numbers?
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Da5id »

Nowizard wrote: Tue Oct 26, 2021 5:29 pm Is there any information about whether IBonds actually keep up with inflation? The metrics used to determine figures for inflation and IBond interest rates are questionably underestimates of actual inflation other than for items in their equation, aren't they?

Tim
Per treasury direct they set it as follows:
We set the inflation rate every six months (on the first business day of May and on the first business day of November), based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy.
Whether that reflects your personal inflation rate (e.g. health care can be big) obviously isn't clear.
investor2018
Posts: 91
Joined: Thu Nov 29, 2018 5:23 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by investor2018 »

Ice-9 wrote: Tue Oct 26, 2021 12:50 pm
investor2018 wrote: Tue Oct 26, 2021 11:57 am Is there a way to link TreasuryDirect account with NW tracking app such as Personal Capital? I do not see any option in Personal Capital to add TreauryDirect account.
I have used Personal Capital since 2014, and similar Yodlee Moneycenter for many years before that, all the while collecting I Bonds in a Treasury Direct account.

Like other financial websites, at various times, Treasury Direct has been technically available in the aggregator sites, then failed after some site update, then back again at a later date. From your question, I'm guessing TD is currently unavailable for linking on Personal Capital?

I suggest that for this one particular website, Treasury Direct, you consider settling for manual updating in Personal Capital rather than trying to have PC automatically retrieve the balance for you. Here's why:

* Even if PC works with TD for a while, then later "breaks," it risks you getting locked out of your account due to some number of failed attempts at logging in. At commercial financial websites, this usually isn't a huge deal. At Treasury Direct, I've read in this forum it can mean running through hoops such as obtaining a medallion guarantee, etc, to restore access to the account. Best to avoid that.

* If all you're investing in at Treasury Direct is savings bonds, the balance only updates once a month anyway. I personally am fine with a manual update 12 times a year, or less if I get lazy.
Thanks for valuable advice, I will setup for manual updates. I do not need to update every month, once a year or every six month would be enough. I just want to ensure I have an item to track it.
SnowBog
Posts: 4680
Joined: Fri Dec 21, 2018 10:21 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by SnowBog »

investor2018 wrote: Tue Oct 26, 2021 6:29 pm
Ice-9 wrote: Tue Oct 26, 2021 12:50 pm
investor2018 wrote: Tue Oct 26, 2021 11:57 am Is there a way to link TreasuryDirect account with NW tracking app such as Personal Capital? I do not see any option in Personal Capital to add TreauryDirect account.
I have used Personal Capital since 2014, and similar Yodlee Moneycenter for many years before that, all the while collecting I Bonds in a Treasury Direct account.

Like other financial websites, at various times, Treasury Direct has been technically available in the aggregator sites, then failed after some site update, then back again at a later date. From your question, I'm guessing TD is currently unavailable for linking on Personal Capital?

I suggest that for this one particular website, Treasury Direct, you consider settling for manual updating in Personal Capital rather than trying to have PC automatically retrieve the balance for you. Here's why:

* Even if PC works with TD for a while, then later "breaks," it risks you getting locked out of your account due to some number of failed attempts at logging in. At commercial financial websites, this usually isn't a huge deal. At Treasury Direct, I've read in this forum it can mean running through hoops such as obtaining a medallion guarantee, etc, to restore access to the account. Best to avoid that.

* If all you're investing in at Treasury Direct is savings bonds, the balance only updates once a month anyway. I personally am fine with a manual update 12 times a year, or less if I get lazy.
Thanks for valuable advice, I will setup for manual updates. I do not need to update every month, once a year or every six month would be enough. I just want to ensure I have an item to track it.
I'm not sure about PC (don't use it anymore)... But I know Mint can't link to TD.

However, eMoney (also Fidelity Full View) can/does.

I have 4 accounts linked (2x spouse + 2x living trust) for many months now (trust accounts from this year, others for well over a year) without issues.

Like many other sites, you will occasionally need to reauthorize access (usually validate the OTP). And sometimes you may need to clear something on the TD side to regain access (for example, if you need to "confirm" your contact information, you'll need to do that on the TD side, then access will be restored).

But I've never had issues getting locked out or blocked from accessing TD...

However, as mentioned manual updates are pretty simple. Takes a few minutes to do so in Mint (which can't connect to TD) when I feel like it. (And oddly, Mint connects to HMBradley but eMoney does not, so I have at least one manual account on both platforms.)
calwatch
Posts: 1431
Joined: Wed Oct 02, 2013 1:48 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by calwatch »

I use Marcus as my linked bank on Treasury Direct and funds are available October 29, after I initiated a deposit on Monday. The funds were debited from the source accounts that day. Will the funds clear by the time TD pulls the money out, should I buy my bonds on October 29?
User avatar
HueyLD
Posts: 9782
Joined: Mon Jan 14, 2008 9:30 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by HueyLD »

calwatch wrote: Tue Oct 26, 2021 7:23 pm I use Marcus as my linked bank on Treasury Direct and funds are available October 29, after I initiated a deposit on Monday. The funds were debited from the source accounts that day. Will the funds clear by the time TD pulls the money out, should I buy my bonds on October 29?
You may want to talk to Marcus about the situation. Some financial institution will give you “special” help to make sure that the ACH debit will work on the day the funds are available.

It usually takes one business day for TD to pull money. So, you need to initiate the acquisition on 10/28. Good luck.
tj
Posts: 9317
Joined: Wed Dec 23, 2009 11:10 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by tj »

Grt2bOutdoors wrote: Tue Oct 26, 2021 4:17 pm
pasadena wrote: Mon Oct 25, 2021 11:54 pm
tj wrote: Mon Oct 25, 2021 12:44 pm
HueyLD wrote: Mon Oct 25, 2021 12:31 pm
tj wrote: Mon Oct 25, 2021 12:22 pm Welp, apparently I have my Ally Bank linked to TreasuryDirect. was gonna buy 10k today, but I don't keep $$ in Ally. So will transfer $10k to Ally tomorrow, hopefully it can be withdrawn before the end of the month. If not, looks like I'll get 6 months of the 7% rate and then 6 months of the mystery rate.

Also, pick your linked bank account wisely, with the paper form that you have to fill out to change a bank account...it seems like it would be a hassle.
Per ally.com:

“ Standard transfer between an Ally Bank and non-Ally Bank account requested before 1:00 am ET, Monday through Friday

Delivery speed: 3 business days
Funds available: 3rd business day

Next-day transfer between an Ally Bank and non-Ally Bank account requested before 7:30 pm ET, Monday through Friday

Delivery speed: 1business days
Funds available: Next business day”
It was an ACH push from Alliant to Ally. Alliant projects funds available on 10/29. I missed the cut-off to transfer today, so it transfers tomorrow. Funds are often available before Alliant projects they will be at the other bank, though.
I bought i-bonds on 07/29. The funds were debited at Ally on July 30th, but the transaction at TD is dated 07/29. If you buy on Friday, you're good.
Let’s be clear though - the order has to be placed on 10/28 for purchase on 10/29. If you put the order in on 10/29 it will be too late. The next business day will be Monday, November 1st.
I may be effed then. Unless I see pending availability for the 29th and place the order on the 28th.
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Grt2bOutdoors »

tj wrote: Tue Oct 26, 2021 10:05 pm
Grt2bOutdoors wrote: Tue Oct 26, 2021 4:17 pm
pasadena wrote: Mon Oct 25, 2021 11:54 pm
tj wrote: Mon Oct 25, 2021 12:44 pm
HueyLD wrote: Mon Oct 25, 2021 12:31 pm
Per ally.com:

“ Standard transfer between an Ally Bank and non-Ally Bank account requested before 1:00 am ET, Monday through Friday

Delivery speed: 3 business days
Funds available: 3rd business day

Next-day transfer between an Ally Bank and non-Ally Bank account requested before 7:30 pm ET, Monday through Friday

Delivery speed: 1business days
Funds available: Next business day”
It was an ACH push from Alliant to Ally. Alliant projects funds available on 10/29. I missed the cut-off to transfer today, so it transfers tomorrow. Funds are often available before Alliant projects they will be at the other bank, though.
I bought i-bonds on 07/29. The funds were debited at Ally on July 30th, but the transaction at TD is dated 07/29. If you buy on Friday, you're good.
Let’s be clear though - the order has to be placed on 10/28 for purchase on 10/29. If you put the order in on 10/29 it will be too late. The next business day will be Monday, November 1st.
I may be effed then. Unless I see pending availability for the 29th and place the order on the 28th.
You'll pick up the 7.12% rate for November then. I wouldn't go that far as to say that yet, price of commodities is still rising and that will filter into CPI-U.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
tj
Posts: 9317
Joined: Wed Dec 23, 2009 11:10 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by tj »

Grt2bOutdoors wrote: Tue Oct 26, 2021 10:40 pm
tj wrote: Tue Oct 26, 2021 10:05 pm
Grt2bOutdoors wrote: Tue Oct 26, 2021 4:17 pm
pasadena wrote: Mon Oct 25, 2021 11:54 pm
tj wrote: Mon Oct 25, 2021 12:44 pm

It was an ACH push from Alliant to Ally. Alliant projects funds available on 10/29. I missed the cut-off to transfer today, so it transfers tomorrow. Funds are often available before Alliant projects they will be at the other bank, though.
I bought i-bonds on 07/29. The funds were debited at Ally on July 30th, but the transaction at TD is dated 07/29. If you buy on Friday, you're good.
Let’s be clear though - the order has to be placed on 10/28 for purchase on 10/29. If you put the order in on 10/29 it will be too late. The next business day will be Monday, November 1st.
I may be effed then. Unless I see pending availability for the 29th and place the order on the 28th.
You'll pick up the 7.12% rate for November then. I wouldn't go that far as to say that yet, price of commodities is still rising and that will filter into CPI-U.
Yes, I mentioned that earlier in the thread, that I would get 7% for the 6 months and then the mystery rate. Might as well wait until late November to pull the trigger at that point though.
User avatar
Mel Lindauer
Moderator
Posts: 35757
Joined: Mon Feb 19, 2007 7:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Mel Lindauer »

tibbitts wrote: Tue Oct 26, 2021 12:52 pm
Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm
tibbitts wrote: Tue Oct 26, 2021 1:15 am
Mel Lindauer wrote: Sun Oct 24, 2021 5:51 pm Can you (or anyone else) please explain this paradox? I just don't know what I'm missing, but am open to learning why this happens so often.
My theory is that it's because the IRA contributions limits have grown over time, which the I-bond limits (not to mention purchase terms) have become much more restrictive.
While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
Well, admittedly it is ironic that we complain about the I-bond limit in that most of us are certain to lose to inflation (due to taxes and no educational use) when we buy them today, so we're complaining about not being allowed to lose more money. However I still think it's mostly just an artifact of greater benefits (not just annual limits, but 12-year/17-year EE doubling, and those juicy credit card purchase rebates) being taken away one after the other over the years.
You're going to lose a whole lot less with 0% I Bonds than you will with any other risk-free investment today (think those low-paying CDs, Treasuries, etc.). If you like, just think of them as the best choice given the other options available.
Best Regards - Mel | | Semper Fi
euler
Posts: 57
Joined: Wed May 27, 2020 7:31 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by euler »

Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
I feel like an idiot asking this, but could someone explain what exactly is meant by "tax deferred" in the context of I bonds? I don't get to deduct the purchase price from my taxable income, as I do with 401k contributions, and later when I redeem the bonds, I can't avoid paying taxes on the interest either, as I would with a Roth. (I am ignoring the educational-expenses exception here.) So in what sense is this a tax-deferred investment? It seems exactly the same to me as something held in a taxable brokerage account. What am I missing?
tj
Posts: 9317
Joined: Wed Dec 23, 2009 11:10 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by tj »

euler wrote: Tue Oct 26, 2021 11:27 pm
Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
I feel like an idiot asking this, but could someone explain what exactly is meant by "tax deferred" in the context of I bonds? I don't get to deduct the purchase price from my taxable income, as I do with 401k contributions, and later when I redeem the bonds, I can't avoid paying taxes on the interest either, as I would with a Roth. (I am ignoring the educational-expenses exception here.) So in what sense is this a tax-deferred investment? It seems exactly the same to me as something held in a taxable brokerage account. What am I missing?
Roth is not tax deferred. Tax deferred is not Tax avoided.

You seem to be missing that deferring the payment of taxes on the accrued I Bond interest counts as a tax deferral. Fixed income held in a taxable account (like a CD) requires taxes to be paid in the year that the interest accrues.
User avatar
billthecat
Posts: 1052
Joined: Tue Jan 24, 2017 1:50 pm
Location: USA

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by billthecat »

euler wrote: Tue Oct 26, 2021 11:27 pm
Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
I feel like an idiot asking this, but could someone explain what exactly is meant by "tax deferred" in the context of I bonds? I don't get to deduct the purchase price from my taxable income, as I do with 401k contributions, and later when I redeem the bonds, I can't avoid paying taxes on the interest either, as I would with a Roth. (I am ignoring the educational-expenses exception here.) So in what sense is this a tax-deferred investment? It seems exactly the same to me as something held in a taxable brokerage account. What am I missing?
Tax on the interest is deferred. So it’s tax-deferred (the interest) but with basis (the purchase price). Like a non deductible IRA contribution.
We cannot direct the winds but we can adjust our sails • It's later than you think • Ack! Thbbft!
SnowBog
Posts: 4680
Joined: Fri Dec 21, 2018 10:21 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by SnowBog »

tj wrote: Tue Oct 26, 2021 11:34 pm
euler wrote: Tue Oct 26, 2021 11:27 pm
Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
I feel like an idiot asking this, but could someone explain what exactly is meant by "tax deferred" in the context of I bonds? I don't get to deduct the purchase price from my taxable income, as I do with 401k contributions, and later when I redeem the bonds, I can't avoid paying taxes on the interest either, as I would with a Roth. (I am ignoring the educational-expenses exception here.) So in what sense is this a tax-deferred investment? It seems exactly the same to me as something held in a taxable brokerage account. What am I missing?
Roth is not tax deferred. Tax deferred is not Tax avoided.

You seem to be missing that deferring the payment of taxes on the accrued I Bond interest counts as a tax deferral. Fixed income held in a taxable account (like a CD) requires taxes to be paid in the year that the interest accrues.
To break this down further...

You are correct, there is no deduction for purchasing savings bonds. From that viewpoint, it's a "taxable" account.

As tj pointed out, with a normal savings account /CD/etc. you'd pay taxes on the interest earned every year.

For simplicity, let's say the average over a year on I Bonds is 5%, so a $10,000 bond would earn $500 in interest (ignoring the 3 month penalty). Normally, you'd pay your marginal tax rate on that interest. But with savings bonds, you can (and by default do) not have to pay any taxes until you sell them. Let's say your marginal rate is 24%, you'd save $120 on taxes in the first year compared to the same interest rate (which you won't find) from a bank/CD. That $120 gets to have compound interest going forward!

Let's say you hold the bond for 20 years, and for simplicity it still averages 5% interest over those years. After 20 years - since you didn't lose any of the interest to taxes - you'd have $27,126.40. Let's say you decide to sell. Since you initially invested $10,000 - that won't be taxed (it's simply a return of your principle). But you'll owe taxes on the $17,126.40 of interest. If you are still at a 24% marginal tax rate, you'd owe roughly $4,111 in taxes. But perhaps (and ideally) you sell when retired and in a lower tax bracket, like the 12% bracket - you'd owe half of the taxes.

So "tax deferred" means tax-free growth until you sell, then you pay taxes only on the gains in the tax year you sell. The result is usually much better than paying taxes each year (reducing the amount of interest that gets to compound), especially if you are in a lower tax bracket when you sell them then the years when you bought/held them.
User avatar
Mel Lindauer
Moderator
Posts: 35757
Joined: Mon Feb 19, 2007 7:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Mel Lindauer »

As SnowBog correctly pointed out in the previous reply, I Bonds can be used as a tax-shifting tool. You might buy them when you're working and in a nigh tax bracket and then choose to redeem them after you've retired and are in a lower tax bracket. So you've shifted the taxes from a high bracket to a low bracket.

And, since they're tax-deferred for up to 30 years, that gives you a lot of flexibility as to when you want to redeem them. You might even choose to redeem them in a year when you got laid off, or when you took time off from work for child rearing.












as
Best Regards - Mel | | Semper Fi
Joe Public
Posts: 196
Joined: Mon Jul 27, 2020 8:36 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by Joe Public »

SnowBog wrote: Tue Oct 26, 2021 11:58 pm
tj wrote: Tue Oct 26, 2021 11:34 pm
euler wrote: Tue Oct 26, 2021 11:27 pm
Mel Lindauer wrote: Tue Oct 26, 2021 12:40 pm While that true, the fact is that the I Bond contribution limits are still greater than the IRA limits, and yet some folks gladly continue to contribute their 6k or 7k to their TIRA and then belittle the 10k I Bond limit which, like the TIRA, is also tax-deferred, but also offers even more benefits (free from state and local taxation, can be used, tax-free, for qualifying educational expenses).
I feel like an idiot asking this, but could someone explain what exactly is meant by "tax deferred" in the context of I bonds? I don't get to deduct the purchase price from my taxable income, as I do with 401k contributions, and later when I redeem the bonds, I can't avoid paying taxes on the interest either, as I would with a Roth. (I am ignoring the educational-expenses exception here.) So in what sense is this a tax-deferred investment? It seems exactly the same to me as something held in a taxable brokerage account. What am I missing?
Roth is not tax deferred. Tax deferred is not Tax avoided.

You seem to be missing that deferring the payment of taxes on the accrued I Bond interest counts as a tax deferral. Fixed income held in a taxable account (like a CD) requires taxes to be paid in the year that the interest accrues.
To break this down further...

You are correct, there is no deduction for purchasing savings bonds. From that viewpoint, it's a "taxable" account.

As tj pointed out, with a normal savings account /CD/etc. you'd pay taxes on the interest earned every year.

For simplicity, let's say the average over a year on I Bonds is 5%, so a $10,000 bond would earn $500 in interest (ignoring the 3 month penalty). Normally, you'd pay your marginal tax rate on that interest. But with savings bonds, you can (and by default do) not have to pay any taxes until you sell them. Let's say your marginal rate is 24%, you'd save $120 on taxes in the first year compared to the same interest rate (which you won't find) from a bank/CD. That $120 gets to have compound interest going forward!

Let's say you hold the bond for 20 years, and for simplicity it still averages 5% interest over those years. After 20 years - since you didn't lose any of the interest to taxes - you'd have $27,126.40. Let's say you decide to sell. Since you initially invested $10,000 - that won't be taxed (it's simply a return of your principle). But you'll owe taxes on the $17,126.40 of interest. If you are still at a 24% marginal tax rate, you'd owe roughly $4,111 in taxes. But perhaps (and ideally) you sell when retired and in a lower tax bracket, like the 12% bracket - you'd owe half of the taxes.

So "tax deferred" means tax-free growth until you sell, then you pay taxes only on the gains in the tax year you sell. The result is usually much better than paying taxes each year (reducing the amount of interest that gets to compound), especially if you are in a lower tax bracket when you sell them then the years when you bought/held them.
Also, if a person lives in a state with a state income tax, the interest on I bonds is tax-exempt for purposes of the state income tax.
tj
Posts: 9317
Joined: Wed Dec 23, 2009 11:10 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by tj »

tj wrote: Tue Oct 26, 2021 10:47 pm
Grt2bOutdoors wrote: Tue Oct 26, 2021 10:40 pm
tj wrote: Tue Oct 26, 2021 10:05 pm
Grt2bOutdoors wrote: Tue Oct 26, 2021 4:17 pm
pasadena wrote: Mon Oct 25, 2021 11:54 pm

I bought i-bonds on 07/29. The funds were debited at Ally on July 30th, but the transaction at TD is dated 07/29. If you buy on Friday, you're good.
Let’s be clear though - the order has to be placed on 10/28 for purchase on 10/29. If you put the order in on 10/29 it will be too late. The next business day will be Monday, November 1st.
I may be effed then. Unless I see pending availability for the 29th and place the order on the 28th.
You'll pick up the 7.12% rate for November then. I wouldn't go that far as to say that yet, price of commodities is still rising and that will filter into CPI-U.
Yes, I mentioned that earlier in the thread, that I would get 7% for the 6 months and then the mystery rate. Might as well wait until late November to pull the trigger at that point though.
Ally posted the $10k today, it seems to be available today. Submitted my purchase at TreasuryDirect, which they dated for tomorrow.
HD192
Posts: 3
Joined: Wed Oct 27, 2021 9:16 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by HD192 »

If you're holding bonds in your portfolio, these seem like a slam dunk.
mikejuss
Posts: 2749
Joined: Tue Jun 23, 2020 1:36 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by mikejuss »

Dumb question: is the interest rate that's set for iBonds each 6 months locked for the life of the iBonds purchased in those months?
Last edited by mikejuss on Wed Oct 27, 2021 9:39 am, edited 1 time in total.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
stefan_lec
Posts: 88
Joined: Fri Mar 08, 2019 10:43 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by stefan_lec »

mikejuss wrote: Wed Oct 27, 2021 9:38 am Dumb question: is the interest rate that's set for iBonds each year locked for the life of the iBonds purchased in that year?
The fixed rate (0%) is locked for as long as you hold the bond. The variable rate adjusts every six months to match inflation.
Portfolio: 75% VT, 25% BNDW/I-bonds/HYSA
mikejuss
Posts: 2749
Joined: Tue Jun 23, 2020 1:36 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by mikejuss »

stefan_lec wrote: Wed Oct 27, 2021 9:39 am
mikejuss wrote: Wed Oct 27, 2021 9:38 am Dumb question: is the interest rate that's set for iBonds each year locked for the life of the iBonds purchased in that year?
The fixed rate (0%) is locked for as long as you hold the bond. The variable rate adjusts every six months to match inflation.
Thanks. Is the fixed rate always zero? If so, what's the point of it? The real rate is whatever the inflation rate is.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
mary1492
Posts: 716
Joined: Thu Oct 17, 2019 3:02 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by mary1492 »

xyzzy
Last edited by mary1492 on Tue Oct 04, 2022 4:46 pm, edited 1 time in total.
mikejuss
Posts: 2749
Joined: Tue Jun 23, 2020 1:36 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by mikejuss »

mary1492 wrote: Wed Oct 27, 2021 9:45 am
mikejuss wrote: Wed Oct 27, 2021 9:42 am
stefan_lec wrote: Wed Oct 27, 2021 9:39 am
mikejuss wrote: Wed Oct 27, 2021 9:38 am Dumb question: is the interest rate that's set for iBonds each year locked for the life of the iBonds purchased in that year?
The fixed rate (0%) is locked for as long as you hold the bond. The variable rate adjusts every six months to match inflation.
Thanks. Is the fixed rate always zero? If so, what's the point of it? The real rate is whatever the inflation rate is.
The fixed rate is not always zero. It's been over 3% in the past.
My bad--so the current fixed rate is zero, and whatever the fixed rate is at the time of purchase is locked for the life of the bond. How is the fixed rate calculated? And, for that matter, what happens if we experience deflation (rather than inflation)?
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
tj
Posts: 9317
Joined: Wed Dec 23, 2009 11:10 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by tj »

mikejuss wrote: Wed Oct 27, 2021 9:47 am
mary1492 wrote: Wed Oct 27, 2021 9:45 am
mikejuss wrote: Wed Oct 27, 2021 9:42 am
stefan_lec wrote: Wed Oct 27, 2021 9:39 am
mikejuss wrote: Wed Oct 27, 2021 9:38 am Dumb question: is the interest rate that's set for iBonds each year locked for the life of the iBonds purchased in that year?
The fixed rate (0%) is locked for as long as you hold the bond. The variable rate adjusts every six months to match inflation.
Thanks. Is the fixed rate always zero? If so, what's the point of it? The real rate is whatever the inflation rate is.
The fixed rate is not always zero. It's been over 3% in the past.
My bad--so the current fixed rate is zero, and whatever the fixed rate is at the time of purchase is locked for the life of the bond. How is the fixed rate calculated? And, for that matter, what happens if we experience deflation (rather than inflation)?
The interest rate won't go below 0. So if there is deflation, you come out ahead.
euler
Posts: 57
Joined: Wed May 27, 2020 7:31 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by euler »

Mel Lindauer wrote: Wed Oct 27, 2021 2:27 am As SnowBog correctly pointed out in the previous reply, I Bonds can be used as a tax-shifting tool. You might buy them when you're working and in a nigh tax bracket and then choose to redeem them after you've retired and are in a lower tax bracket. So you've shifted the taxes from a high bracket to a low bracket.
Thanks for clearing it up for me. I think I was mentally conflating the capital appreciation of an asset in a taxable account, with the accumulated interest of a savings bond, since the mechanics of the two are somewhat similar (you pay taxes on the increase when you "sell"). The tax-shifting argument makes sense.

This raises an interesting point, which is that as with the Roth vs non-Roth 401k question, the deferred tax can cut both ways. I.e. if you are in a low tax bracket and your portfolio is doing well, it's conceivable that you'd be better off paying the tax now, instead of at redemption. For example, I recently "down shifted" into a job which puts me in the 12% bracket. The tax-deferred aspect of I bonds will probably end up being a wash for me, although it's possible I will go back to a higher bracket before I retire.
MrJedi
Posts: 3538
Joined: Wed May 06, 2020 11:42 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by MrJedi »

euler wrote: Wed Oct 27, 2021 9:58 am
Mel Lindauer wrote: Wed Oct 27, 2021 2:27 am As SnowBog correctly pointed out in the previous reply, I Bonds can be used as a tax-shifting tool. You might buy them when you're working and in a nigh tax bracket and then choose to redeem them after you've retired and are in a lower tax bracket. So you've shifted the taxes from a high bracket to a low bracket.
Thanks for clearing it up for me. I think I was mentally conflating the capital appreciation of an asset in a taxable account, with the accumulated interest of a savings bond, since the mechanics of the two are somewhat similar (you pay taxes on the increase when you "sell"). The tax-shifting argument makes sense.

This raises an interesting point, which is that as with the Roth vs non-Roth 401k question, the deferred tax can cut both ways. I.e. if you are in a low tax bracket and your portfolio is doing well, it's conceivable that you'd be better off paying the tax now, instead of at redemption. For example, I recently "down shifted" into a job which puts me in the 12% bracket. The tax-deferred aspect of I bonds will probably end up being a wash for me, although it's possible I will go back to a higher bracket before I retire.
There is also the tax drag shielding aspect, not just the tax deferral. Normally with taxable bond you will pay tax every year which leaves you less money to invest each year. It is like a compound interest that works against you. The I bond can be shielded from that annual tax drag.
tj
Posts: 9317
Joined: Wed Dec 23, 2009 11:10 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by tj »

euler wrote: Wed Oct 27, 2021 9:58 am
Mel Lindauer wrote: Wed Oct 27, 2021 2:27 am As SnowBog correctly pointed out in the previous reply, I Bonds can be used as a tax-shifting tool. You might buy them when you're working and in a nigh tax bracket and then choose to redeem them after you've retired and are in a lower tax bracket. So you've shifted the taxes from a high bracket to a low bracket.
Thanks for clearing it up for me. I think I was mentally conflating the capital appreciation of an asset in a taxable account, with the accumulated interest of a savings bond, since the mechanics of the two are somewhat similar (you pay taxes on the increase when you "sell"). The tax-shifting argument makes sense.

This raises an interesting point, which is that as with the Roth vs non-Roth 401k question, the deferred tax can cut both ways. I.e. if you are in a low tax bracket and your portfolio is doing well, it's conceivable that you'd be better off paying the tax now, instead of at redemption. For example, I recently "down shifted" into a job which puts me in the 12% bracket. The tax-deferred aspect of I bonds will probably end up being a wash for me, although it's possible I will go back to a higher bracket before I retire.
For me, these aren't intended to be super long term holds. I'll sell when the interest rate stops being attractive. I can't earn the blended 5% guaranteed on 10k anywhere else, so it's a no brainer.
User avatar
ApeAttack
Posts: 914
Joined: Wed Dec 23, 2020 7:28 pm
Location: Gorillatown, USA

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by ApeAttack »

mary1492 wrote: Wed Oct 27, 2021 9:45 am
mikejuss wrote: Wed Oct 27, 2021 9:42 am
stefan_lec wrote: Wed Oct 27, 2021 9:39 am
mikejuss wrote: Wed Oct 27, 2021 9:38 am Dumb question: is the interest rate that's set for iBonds each year locked for the life of the iBonds purchased in that year?
The fixed rate (0%) is locked for as long as you hold the bond. The variable rate adjusts every six months to match inflation.
Thanks. Is the fixed rate always zero? If so, what's the point of it? The real rate is whatever the inflation rate is.
The fixed rate is not always zero. It's been over 3% in the past.
A long, long time ago. :(
May all your index funds gain +0.5% today.
User avatar
ApeAttack
Posts: 914
Joined: Wed Dec 23, 2020 7:28 pm
Location: Gorillatown, USA

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by ApeAttack »

mikejuss wrote: Wed Oct 27, 2021 9:47 am
mary1492 wrote: Wed Oct 27, 2021 9:45 am
mikejuss wrote: Wed Oct 27, 2021 9:42 am
stefan_lec wrote: Wed Oct 27, 2021 9:39 am
mikejuss wrote: Wed Oct 27, 2021 9:38 am Dumb question: is the interest rate that's set for iBonds each year locked for the life of the iBonds purchased in that year?
The fixed rate (0%) is locked for as long as you hold the bond. The variable rate adjusts every six months to match inflation.
Thanks. Is the fixed rate always zero? If so, what's the point of it? The real rate is whatever the inflation rate is.
The fixed rate is not always zero. It's been over 3% in the past.
My bad--so the current fixed rate is zero, and whatever the fixed rate is at the time of purchase is locked for the life of the bond. How is the fixed rate calculated? And, for that matter, what happens if we experience deflation (rather than inflation)?
I haven't seen anyone give an explanation of how the fixed rate is determined. My guess is the Treasury uses chicken bones to conjure up a number.
May all your index funds gain +0.5% today.
User avatar
HueyLD
Posts: 9782
Joined: Mon Jan 14, 2008 9:30 am

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by HueyLD »

The law gives Secretary of the Treasury the right to determine the fixed rate. However, no specific rules are stated in the law, meaning that it is up to the discretion of the Secretary.

“ § 359.10 What is the fixed rate of return?

The Secretary, or the Secretary's designee, determines the fixed rate of return. The fixed rate is established for the life of the bond. The fixed rate will always be greater than or equal to 0.00%. 1 The most recently announced fixed rate is only for bonds purchased during the six months following the announcement, or for any other period of time announced by the Secretary.

1 However, the fixed rate is not a guaranteed minimum rate. The composite rate is composed of both the fixed rate and a semiannual inflation rate, which could possibly be less than the fixed rate or negative in deflationary situations. In all cases, however, the composite rate will always be greater than or equal to 0.00%.”

https://www.law.cornell.edu/cfr/text/31/359.10
SnowBog
Posts: 4680
Joined: Fri Dec 21, 2018 10:21 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by SnowBog »

I've heard that the fixed rate may be aligned to the 10-year TIPS rate. There isn't any hard /fast rule /data to support this, more coincidental as they are free to set the rate at whatever they want.
User avatar
billthecat
Posts: 1052
Joined: Tue Jan 24, 2017 1:50 pm
Location: USA

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by billthecat »

Let's assume the fixed rate at some point increases to be higher than some of your current holdings. What would be the math to determine if you should sell (and pay taxes on accrued interest) to buy new I bonds with the higher fixed rate, or just keep what you have? Maybe the answer is 'never' and instead just buy more.
We cannot direct the winds but we can adjust our sails • It's later than you think • Ack! Thbbft!
SnowBog
Posts: 4680
Joined: Fri Dec 21, 2018 10:21 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by SnowBog »

billthecat wrote: Wed Oct 27, 2021 12:37 pm Let's assume the fixed rate at some point increases to be higher than some of your current holdings. What would be the math to determine if you should sell (and pay taxes on accrued interest) to buy new I bonds with the higher fixed rate, or just keep what you have? Maybe the answer is 'never' and instead just buy more.
Depends on why you bought them, and how much you want to own.

For example, if someone wants no more than $50k for emergency funds, then replacing lower fixed rate bonds with higher fixed rates (actual math would be dependent on tax rates and time line).

For myself, I'm buying I and EE Bonds to create an income bridge between retirement and delayed social security/pensions. I'll be buying $20-45k/year of I Bonds. So for me I don't have any I'd "replace" as I'm just buying more...
LittleMaggieMae
Posts: 2545
Joined: Mon Aug 12, 2019 9:06 pm

Re: I Bonds Mega Thread (I Bond Heads Rejoice!)

Post by LittleMaggieMae »

ApeAttack wrote: Wed Oct 27, 2021 11:20 am
mikejuss wrote: Wed Oct 27, 2021 9:47 am
mary1492 wrote: Wed Oct 27, 2021 9:45 am
mikejuss wrote: Wed Oct 27, 2021 9:42 am
stefan_lec wrote: Wed Oct 27, 2021 9:39 am

The fixed rate (0%) is locked for as long as you hold the bond. The variable rate adjusts every six months to match inflation.
Thanks. Is the fixed rate always zero? If so, what's the point of it? The real rate is whatever the inflation rate is.
The fixed rate is not always zero. It's been over 3% in the past.
My bad--so the current fixed rate is zero, and whatever the fixed rate is at the time of purchase is locked for the life of the bond. How is the fixed rate calculated? And, for that matter, what happens if we experience deflation (rather than inflation)?

Kind of like how saying there's a hamster, squirrel, dragon or perhaps a Tesseract under the hood of your car and that's what makes the car move - when you don't understand the basics of how the engine works. :)
I haven't seen anyone give an explanation of how the fixed rate is determined. My guess is the Treasury uses chicken bones to conjure up a number.
Yep. Chicken bones. If you can't get motivated to go over to the TD website and read how it's calculated (and you can SEE all the fixed rates for past bonds, too!) then the explanation of Chicken Bones is a good way to understand how it's done. :)

FWIW: I've gone to the TD website and read how it's done... multiple times over the years - I can't keep it in my head. I'm too lazy to go over there now and grab the link for all you all....
Post Reply