Any Reason to NOT max out I Bonds and EE Bonds

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HomerJ
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by HomerJ »

SnowBog wrote: Tue Apr 20, 2021 4:24 pm But what EE Bonds give me is predictability. Which IMHO is one of their key advantages. Buying $10k for each spouse for say 5 years means we'll get $40k/year each year for $200k total. Of that, the original $20k invested each year is returned tax free (return of principle), the $20k in interest is state tax free.

EE Bonds are basically a DIY Annuity. I'm not expecting them to get me rich, and they'll make up a very small fraction of my overall portfolio. But I'm very happy with the role they'll play in our retirement plan.
I'm doing the same thing with I Bonds, and I think they make a better DIY annuity, because you don't have to worry about inflation.

I'd like to get a 20 year ladder going of $20k each year. We already have 5 years built up.

In 15 years, I'll be 67, and my wife will be 75. We will then have 20 years of guaranteed $20k payments coming to us ($20k in today's money).

Since our SS will be giving us around $50k together (also inflation-adjusted, so $50k in today's money), that's $70k in inflation-adjusted money a year for 20 years (getting us to 87 and 95).

Which really is all we need to cover basic expenses. The rest of our portfolio will be just for mostly discretionary stuff (and occasional big-ticket items like a new car or a new roof).
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by watchnerd »

anon_investor wrote: Wed Apr 21, 2021 10:38 am
alluringreality wrote: Wed Apr 21, 2021 10:37 am
watchnerd wrote: Wed Apr 21, 2021 10:33 am How many spouses do you have??
While amusing, they're including the 20 year doubling.
I don't think I could handle doubling of spouses at 20 years... :twisted:
Depends if the gains are taxed long term or short term.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by celia »

alluringreality wrote: Wed Apr 21, 2021 10:37 am
watchnerd wrote: Wed Apr 21, 2021 10:33 am How many spouses do you have??
While amusing, they're including the 20 year doubling.
I interpret this as the two new kids would then be adults. Is the “doubling” a “multiplying” process? Ie, instead of one more adult spouse, there could be two more young adult ‘taxpayers’.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by watchnerd »

HomerJ wrote: Wed Apr 21, 2021 11:22 am
SnowBog wrote: Tue Apr 20, 2021 4:24 pm But what EE Bonds give me is predictability. Which IMHO is one of their key advantages. Buying $10k for each spouse for say 5 years means we'll get $40k/year each year for $200k total. Of that, the original $20k invested each year is returned tax free (return of principle), the $20k in interest is state tax free.

EE Bonds are basically a DIY Annuity. I'm not expecting them to get me rich, and they'll make up a very small fraction of my overall portfolio. But I'm very happy with the role they'll play in our retirement plan.
I'm doing the same thing with I Bonds, and I think they make a better DIY annuity, because you don't have to worry about inflation.

I'd like to get a 20 year ladder going of $20k each year. We already have 5 years built up.

In 15 years, I'll be 67, and my wife will be 75. We will then have 20 years of guaranteed $20k payments coming to us ($20k in today's money).

Since our SS will be giving us around $50k together (also inflation-adjusted, so $50k in today's money), that's $70k in inflation-adjusted money a year for 20 years (getting us to 87 and 95).

Which really is all we need to cover basic expenses. The rest of our portfolio will be just for mostly discretionary stuff (and occasional big-ticket items like a new car or a new roof).
I Bonds I get how to calculate the return in real returns.

But I struggle with how to evaluate EE returns in real terms.
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celia
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by celia »

trizzle wrote: Wed Apr 21, 2021 8:34 am My reason for not maxing out ibonds is simply Treasury Direct. Wife and I did the 10K each for several years but after getting locked out of Treasury Direct multiple times (each having to call hem to unlock) I wasn't convinced my wife would be able to get into the accounts in the event something happened to me.
I wanted to bring up simplification for estate planning purposes as another reason for not wanting a Treasury Direct account. How many executors/ trustees think to check it out to look for assets of a deceased? It’s not like TD will send you an annual statement in the mail reminding you of your balance or even existence of the account.

We have deceased relatives whom I suspect had a TD account, but the trustee didn’t feel like contacting them. And TD won’t talk to the beneficiaries.

My question is if you have bonds at Treasury Direct, do they (or paper bonds) get a step-up in value at death? In other words, is the interest earned up to date of death tax-free?
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by cas »

celia wrote: Wed Apr 21, 2021 12:04 pm
My question is if you have bonds at Treasury Direct, do they (or paper bonds) get a step-up in value at death? In other words, is the interest earned up to date of death tax-free?
No. Somebody or something is going to pay tax on all the interest sooner or later. But there are various options on who or what pays the tax and when they do so.

See: Publication 550 "Investment Income and Expenses" -> U.S. Savings Bonds -> Decedents
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by celia »

cas wrote: Wed Apr 21, 2021 12:15 pm No. Somebody or something is going to pay tax on all the interest sooner or later.
Thank you. As I suspected, for estate planning purposes, instead of having a Treasury Direct account, it would seem better to hold TIPS or muni funds in a taxable account, to be able to get the step-up eventually. Or hold them in tax-deferred, where step-up is irrelevant. The only way that makes sense in Roth is if all of your portfolio is in Roth.

I guess this also means Treasury Direct is a Taxable account but nothing in it gets a step-up in value when the account owner dies. However, some account owners could be paying taxes on yearly interest on some/all of the bonds.

I hope these account owners make sure their executor/trustee knows about the account and if any taxes were paid along the way.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

HomerJ wrote: Wed Apr 21, 2021 11:22 am
SnowBog wrote: Tue Apr 20, 2021 4:24 pm But what EE Bonds give me is predictability. Which IMHO is one of their key advantages. Buying $10k for each spouse for say 5 years means we'll get $40k/year each year for $200k total. Of that, the original $20k invested each year is returned tax free (return of principle), the $20k in interest is state tax free.

EE Bonds are basically a DIY Annuity. I'm not expecting them to get me rich, and they'll make up a very small fraction of my overall portfolio. But I'm very happy with the role they'll play in our retirement plan.
I'm doing the same thing with I Bonds, and I think they make a better DIY annuity, because you don't have to worry about inflation.

I'd like to get a 20 year ladder going of $20k each year. We already have 5 years built up.

In 15 years, I'll be 67, and my wife will be 75. We will then have 20 years of guaranteed $20k payments coming to us ($20k in today's money).

Since our SS will be giving us around $50k together (also inflation-adjusted, so $50k in today's money), that's $70k in inflation-adjusted money a year for 20 years (getting us to 87 and 95).

Which really is all we need to cover basic expenses. The rest of our portfolio will be just for mostly discretionary stuff (and occasional big-ticket items like a new car or a new roof).
I'm using both. In part because I didn't start 20 years ahead so using I Bonds to backfill for earlier years. But also because I Bonds adjust for inflation, so if we end up with a massive rate spike, I Bonds will help buffer that.

If we stick to our current plan, expecting roughly $35k - $40k available to be redeemed across I/EE Bonds per year from when we plan to retire to delayed SS/pensions.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by anon_investor »

celia wrote: Wed Apr 21, 2021 1:05 pm
cas wrote: Wed Apr 21, 2021 12:15 pm No. Somebody or something is going to pay tax on all the interest sooner or later.
Thank you. As I suspected, for estate planning purposes, instead of having a Treasury Direct account, it would seem better to hold TIPS or muni funds in a taxable account, to be able to get the step-up eventually. Or hold them in tax-deferred, where step-up is irrelevant. The only way that makes sense in Roth is if all of your portfolio is in Roth.

I guess this also means Treasury Direct is a Taxable account but nothing in it gets a step-up in value when the account owner dies. However, some account owners could be paying taxes on yearly interest on some/all of the bonds.

I hope these account owners make sure their executor/trustee knows about the account and if any taxes were paid along the way.
My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Grt2bOutdoors »

anon_investor wrote: Wed Apr 21, 2021 2:30 pm
celia wrote: Wed Apr 21, 2021 1:05 pm
cas wrote: Wed Apr 21, 2021 12:15 pm No. Somebody or something is going to pay tax on all the interest sooner or later.
Thank you. As I suspected, for estate planning purposes, instead of having a Treasury Direct account, it would seem better to hold TIPS or muni funds in a taxable account, to be able to get the step-up eventually. Or hold them in tax-deferred, where step-up is irrelevant. The only way that makes sense in Roth is if all of your portfolio is in Roth.

I guess this also means Treasury Direct is a Taxable account but nothing in it gets a step-up in value when the account owner dies. However, some account owners could be paying taxes on yearly interest on some/all of the bonds.

I hope these account owners make sure their executor/trustee knows about the account and if any taxes were paid along the way.
My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
How do you set up “secondary ownership with transaction rights”?
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by watchnerd »

celia wrote: Wed Apr 21, 2021 1:05 pm
cas wrote: Wed Apr 21, 2021 12:15 pm No. Somebody or something is going to pay tax on all the interest sooner or later.
Thank you. As I suspected, for estate planning purposes, instead of having a Treasury Direct account, it would seem better to hold TIPS or muni funds in a taxable account, to be able to get the step-up eventually. Or hold them in tax-deferred, where step-up is irrelevant. The only way that makes sense in Roth is if all of your portfolio is in Roth.

I guess this also means Treasury Direct is a Taxable account but nothing in it gets a step-up in value when the account owner dies. However, some account owners could be paying taxes on yearly interest on some/all of the bonds.

I hope these account owners make sure their executor/trustee knows about the account and if any taxes were paid along the way.
That's just too much work for too little gain, in our case.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by anon_investor »

Grt2bOutdoors wrote: Wed Apr 21, 2021 6:54 pm
anon_investor wrote: Wed Apr 21, 2021 2:30 pm
celia wrote: Wed Apr 21, 2021 1:05 pm
cas wrote: Wed Apr 21, 2021 12:15 pm No. Somebody or something is going to pay tax on all the interest sooner or later.
Thank you. As I suspected, for estate planning purposes, instead of having a Treasury Direct account, it would seem better to hold TIPS or muni funds in a taxable account, to be able to get the step-up eventually. Or hold them in tax-deferred, where step-up is irrelevant. The only way that makes sense in Roth is if all of your portfolio is in Roth.

I guess this also means Treasury Direct is a Taxable account but nothing in it gets a step-up in value when the account owner dies. However, some account owners could be paying taxes on yearly interest on some/all of the bonds.

I hope these account owners make sure their executor/trustee knows about the account and if any taxes were paid along the way.
My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
How do you set up “secondary ownership with transaction rights”?
How to add a secondary owner:
https://www.treasurydirect.gov/indiv/he ... dsecondary

How to grant transaction rights (to a secondary owner with their own TD account):
https://www.treasurydirect.gov/indiv/he ... #grantview
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Grt2bOutdoors »

^^^Excellent! Thank you, anon_investor.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

anon_investor wrote: Wed Apr 21, 2021 2:30 pm
celia wrote: Wed Apr 21, 2021 1:05 pm
cas wrote: Wed Apr 21, 2021 12:15 pm No. Somebody or something is going to pay tax on all the interest sooner or later.
Thank you. As I suspected, for estate planning purposes, instead of having a Treasury Direct account, it would seem better to hold TIPS or muni funds in a taxable account, to be able to get the step-up eventually. Or hold them in tax-deferred, where step-up is irrelevant. The only way that makes sense in Roth is if all of your portfolio is in Roth.

I guess this also means Treasury Direct is a Taxable account but nothing in it gets a step-up in value when the account owner dies. However, some account owners could be paying taxes on yearly interest on some/all of the bonds.

I hope these account owners make sure their executor/trustee knows about the account and if any taxes were paid along the way.
My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
Same here. I haven't done it yet, but I plan on having a copy (maybe even pre-filled) of the transfer requests printed in the "death book."

Maybe we'll re-evaluate as we move forward, but our primary use case at the moment is providing a safe income floor between retirement and delayed SS/pension. So I'm not currently seeing this as something that will be part of our estate "plan".

Our "plan" is to have all I/EE Bonds redeemed before we turn 70 (30 year maturity of the oldest would be when we are 82-85), we are currently 45 (or close enough).

I'm most concerned if I pass away before bonds in our trust(s) are redeemed, so I plan to use them first (even if they are a higher rate than others). That would move us from 4 accounts to 2, and after death/transfer just 1 account for the survivor to manage.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by bmstrong »

anon_investor wrote: Wed Apr 21, 2021 7:01 pm
Grt2bOutdoors wrote: Wed Apr 21, 2021 6:54 pm
anon_investor wrote: Wed Apr 21, 2021 2:30 pm
celia wrote: Wed Apr 21, 2021 1:05 pm
cas wrote: Wed Apr 21, 2021 12:15 pm No. Somebody or something is going to pay tax on all the interest sooner or later.
Thank you. As I suspected, for estate planning purposes, instead of having a Treasury Direct account, it would seem better to hold TIPS or muni funds in a taxable account, to be able to get the step-up eventually. Or hold them in tax-deferred, where step-up is irrelevant. The only way that makes sense in Roth is if all of your portfolio is in Roth.

I guess this also means Treasury Direct is a Taxable account but nothing in it gets a step-up in value when the account owner dies. However, some account owners could be paying taxes on yearly interest on some/all of the bonds.

I hope these account owners make sure their executor/trustee knows about the account and if any taxes were paid along the way.
My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
How do you set up “secondary ownership with transaction rights”?
How to add a secondary owner:
https://www.treasurydirect.gov/indiv/he ... dsecondary

How to grant transaction rights (to a secondary owner with their own TD account):
https://www.treasurydirect.gov/indiv/he ... #grantview
Thanks!
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by AlwaysLearningMore »

watchnerd wrote: Wed Apr 21, 2021 10:33 am
SnowBog wrote: Tue Apr 20, 2021 4:24 pm Buying $10k for each spouse for say 5 years means we'll get $40k/year each year for $200k total.
How many spouses do you have??
Imagine the I Bond accumulation possibilities (though Reynolds v. U.S. might complicate inheritance of the bonds).
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by ApeAttack »

anon_investor wrote: Wed Apr 21, 2021 2:30 pm
celia wrote: Wed Apr 21, 2021 1:05 pm
cas wrote: Wed Apr 21, 2021 12:15 pm No. Somebody or something is going to pay tax on all the interest sooner or later.
Thank you. As I suspected, for estate planning purposes, instead of having a Treasury Direct account, it would seem better to hold TIPS or muni funds in a taxable account, to be able to get the step-up eventually. Or hold them in tax-deferred, where step-up is irrelevant. The only way that makes sense in Roth is if all of your portfolio is in Roth.

I guess this also means Treasury Direct is a Taxable account but nothing in it gets a step-up in value when the account owner dies. However, some account owners could be paying taxes on yearly interest on some/all of the bonds.

I hope these account owners make sure their executor/trustee knows about the account and if any taxes were paid along the way.
My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
I call it a "death package".
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by anon_investor »

ApeAttack wrote: Sun Apr 25, 2021 4:32 pm
anon_investor wrote: Wed Apr 21, 2021 2:30 pm
celia wrote: Wed Apr 21, 2021 1:05 pm
cas wrote: Wed Apr 21, 2021 12:15 pm No. Somebody or something is going to pay tax on all the interest sooner or later.
Thank you. As I suspected, for estate planning purposes, instead of having a Treasury Direct account, it would seem better to hold TIPS or muni funds in a taxable account, to be able to get the step-up eventually. Or hold them in tax-deferred, where step-up is irrelevant. The only way that makes sense in Roth is if all of your portfolio is in Roth.

I guess this also means Treasury Direct is a Taxable account but nothing in it gets a step-up in value when the account owner dies. However, some account owners could be paying taxes on yearly interest on some/all of the bonds.

I hope these account owners make sure their executor/trustee knows about the account and if any taxes were paid along the way.
My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
I call it a "death package".
That sounds worse for some reason... :twisted:
We have the instructions from all our financial institutions (including TD) for how to transfer assets to the beneficiary in our "death book".
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Jack FFR1846 »

anon_investor wrote: Wed Apr 21, 2021 2:30 pm My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
I imagine there are going to be some amount of bonds that heirs never even know about if they're electronic. At least in paper form, they can be found in envelopes stuffed in an end table or a safe deposit box.

We're currently dealing with paper bonds bought by DW's grandparents. They were stuffed in a safe deposit box in the grandparents' names. They were inherited by one of their daughters who left them stuffed in a safe deposit box. Now we're having a lawyer handle them. Some were bought as long ago as 1943. Probates have to be re-opened because none of them were included in previous probates because, well, the old way was to hide everything from the government. But at least we know they exist.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

AlwaysLearningMore wrote: Sun Apr 25, 2021 4:23 pm
watchnerd wrote: Wed Apr 21, 2021 10:33 am
SnowBog wrote: Tue Apr 20, 2021 4:24 pm Buying $10k for each spouse for say 5 years means we'll get $40k/year each year for $200k total.
How many spouses do you have??
Imagine the I Bond accumulation possibilities (though Reynolds v. U.S. might complicate inheritance of the bonds).
LOL... 1 spouse. But each spouse can buy $10k, and if they have a living trust that's another $10k each. Combined that's 2 x $20k for each, so with one spouse that's $40k. Add another $5k via tax refunds, now your are $45k/year for a couple.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by anon_investor »

Jack FFR1846 wrote: Sun Apr 25, 2021 4:59 pm
anon_investor wrote: Wed Apr 21, 2021 2:30 pm My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
I imagine there are going to be some amount of bonds that heirs never even know about if they're electronic. At least in paper form, they can be found in envelopes stuffed in an end table or a safe deposit box.

We're currently dealing with paper bonds bought by DW's grandparents. They were stuffed in a safe deposit box in the grandparents' names. They were inherited by one of their daughters who left them stuffed in a safe deposit box. Now we're having a lawyer handle them. Some were bought as long ago as 1943. Probates have to be re-opened because none of them were included in previous probates because, well, the old way was to hide everything from the government. But at least we know they exist.
I would think I Bonds and EE Bonds held at TD would be easier for heirs and executors to find. At least it's centralized. If old paper bonds are thrown out, how is anyone going to know they even existed?
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Buy_N_Hold »

nisiprius wrote: Tue Apr 20, 2021 10:43 am In my personal opinion, there are enough practical, nuisance, and concern about the nuts-and-bolts details of managing savings bonds to weigh into the decision.

This is very personal, but: I am seriously disappointed by the near-discontinuation of paper bonds because I have reservations about electronic bonds in Treasury Direct. The reservations mostly concern the practical difficulties that my family might encounter in locating and redeeming them if the need arises.

I like and have kept our paper I bonds because they offer true co-ownership. Either co-owner can redeem the bond directly, without the permission or even the knowledge of the other--which is a disadvantage if you are a control freak, but the same characteristic makes them easy to redeem after the death of the co-owner. No need to present a death certificate, no need to transfer ownership, no probate, no nothing.

At the same time, though, I am concerned about paper I-bonds in an electronic age, and at a time when only a limited number of banks are willing to redeem them, and the procedure for redeeming them by mail with the Treasury seems involved.

I dislike electronic bonds to the point of throwing in the towel and redeeming them and empty our Treasury Direct accounts. The reasons are that it is one or two more electronic accounts that other members of the family must find and deal with; there is no true co-ownership, the bond is in one person's account or the other, and according to the website and an email exchange with Treasury Direct, a survivor must deal with ownership transfer; and the website has a disconcerting habit of forgetting my account and insisting on my getting a "one-time passcode" to re-establish access.

The future of savings bonds isn't as clear as I'd like it to be. Back in either 2008 or 2009, I forget which, a sudden and drastic cut in annual purchase limit from $30,000 to (then) $5,000/year was made with 31 days' notice and no real explanation. I wish there were a clearer statement of the Treasury's future intentions for the program. None of this should affect existing purchases or holdings, but it gives me some faint unease about the idea of continuing them and expecting them to remain available for another thirty years.
Fascinating perspective on the drawbacks of the electronic bonds. Thanks for the input!
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by radiowave »

trizzle wrote: Wed Apr 21, 2021 8:34 am My reason for not maxing out ibonds is simply Treasury Direct. Wife and I did the 10K each for several years but after getting locked out of Treasury Direct multiple times (each having to call hem to unlock) I wasn't convinced my wife would be able to get into the accounts in the event something happened to me. So we liquidated all our ibonds this year - which is a pity because I do very much like the product. In the end, simplifying and minimizing the number of accounts we have to keep track of won out.

-t
+1 agree nice, safe product, too bad TD is not reliably
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Big Dog »

celia wrote: Wed Apr 21, 2021 12:04 pm
trizzle wrote: Wed Apr 21, 2021 8:34 am My reason for not maxing out ibonds is simply Treasury Direct. Wife and I did the 10K each for several years but after getting locked out of Treasury Direct multiple times (each having to call hem to unlock) I wasn't convinced my wife would be able to get into the accounts in the event something happened to me.
I wanted to bring up simplification for estate planning purposes as another reason for not wanting a Treasury Direct account. How many executors/ trustees think to check it out to look for assets of a deceased? It’s not like TD will send you an annual statement in the mail reminding you of your balance or even existence of the account.

We have deceased relatives whom I suspect had a TD account, but the trustee didn’t feel like contacting them. And TD won’t talk to the beneficiaries.

My question is if you have bonds at Treasury Direct, do they (or paper bonds) get a step-up in value at death? In other words, is the interest earned up to date of death tax-free?
And the fact that Treasury Direct does not do Joint Accounts with PoD/ToD, so the spouses could get first dibs when one dies, and the kids (other beneficiaries) automatically get the account when the second spouse dies.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by smectym »

My answer to OP: we hold a lot of both I and EE, but we also hold risk: equities and (non-savings) bonds. If “maxing out” on savings bonds means you have little or nothing left over to invest in the equity markets I would think twice about that; because while you want that “safety corner” savings bonds provide, absent special circumstances, you also want risk exposure.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by smectym »

To clarify granted OP has a current “LifeStrategy” style allocation, my caveat re “maxing out” on savings bonds refers to allocations going forward
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Iorek »

celia wrote: Wed Apr 21, 2021 1:05 pm
cas wrote: Wed Apr 21, 2021 12:15 pm No. Somebody or something is going to pay tax on all the interest sooner or later.
Thank you. As I suspected, for estate planning purposes, instead of having a Treasury Direct account, it would seem better to hold TIPS or muni funds in a taxable account, to be able to get the step-up eventually. Or hold them in tax-deferred, where step-up is irrelevant. The only way that makes sense in Roth is if all of your portfolio is in Roth.

I guess this also means Treasury Direct is a Taxable account but nothing in it gets a step-up in value when the account owner dies. However, some account owners could be paying taxes on yearly interest on some/all of the bonds.

I hope these account owners make sure their executor/trustee knows about the account and if any taxes were paid along the way.
Holding TIPS funds in taxable to get a basis step up at death seems like the tail wagging the dog at best.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by smectym »

anon_investor wrote: Sun Apr 25, 2021 6:14 pm
Jack FFR1846 wrote: Sun Apr 25, 2021 4:59 pm
anon_investor wrote: Wed Apr 21, 2021 2:30 pm My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
I imagine there are going to be some amount of bonds that heirs never even know about if they're electronic. At least in paper form, they can be found in envelopes stuffed in an end table or a safe deposit box.

We're currently dealing with paper bonds bought by DW's grandparents. They were stuffed in a safe deposit box in the grandparents' names. They were inherited by one of their daughters who left them stuffed in a safe deposit box. Now we're having a lawyer handle them. Some were bought as long ago as 1943. Probates have to be re-opened because none of them were included in previous probates because, well, the old way was to hide everything from the government. But at least we know they exist.
I would think I Bonds and EE Bonds held at TD would be easier for heirs and executors to find. At least it's centralized. If old paper bonds are thrown out, how is anyone going to know they even existed?
We have both paper and electronic, and no doubt both will be a nightmare for heirs. Best case, I’ll live long enough for us to cash most of them in. No doubt somewhere there are statistics for permanently unredeemed savings bonds and I bet that number is not negligible
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by ThisTimeItsDifferent »

smectym wrote: Sun Apr 25, 2021 8:39 pm
We have both paper and electronic, and no doubt both will be a nightmare for heirs. Best case, I’ll live long enough for us to cash most of them in. No doubt somewhere there are statistics for permanently unredeemed savings bonds and I bet that number is not negligible
2.6% of all issued bonds by value are mature but unredeemed, (i.e. mostly lost) according to the National Conference of State Legislatures https://www.ncsl.org/research/financial ... bonds.aspx

Did you know?

The U.S. Treasury holds an estimated $17 billion in unredeemed mature savings bonds.
Seventeen states have enacted legislation to create a process for obtaining the titles to unclaimed U.S. savings bonds.
Kansas has redeemed more than $860,000 in unclaimed savings bonds in its possession, while Kentucky redeemed about $589,000.

U.S. savings bonds have been sold continuously since 1935 as a savings device with fixed interest payments and redemption values. Savings bonds are registered securities, payable only to the registered owner, and generally are not transferable. Given the 6 billion savings bonds worth more than $660 billion sold over 80 years, it is estimated that the U.S. Department of the Treasury holds more than $17 billion worth of unredeemed savings bonds that have matured and no longer are earning interest. Unlike the states, Treasury does not have a streamlined process for returning savings bonds that have become abandoned or unclaimed property to their owners. [My comment: neither do the states. They just have a streamlined process to cheat (escheat) them.]

Since the 1950s, states have sought to recover the proceeds from matured but unredeemed savings bonds through the states’ unclaimed property statutes. In 1952, the U.S. Treasury issued Bulletin 111, explaining that it would pay the proceeds from savings bonds to a state if the state obtained title to the bonds through its escheatment process—the process of turning over unclaimed or abandoned property to a state agency. Treasury would not pay, however, if a state merely obtained a right to take custody of the proceeds in a person’s name, rather than the title in the state’s name. Treasury has consistently argued since 1952 that a state acting as a custodian of the bond until the bondholder redeems it is not sufficient authority to obtain the proceeds.

....

Citing its historical precedent, Treasury allows state escheatment claims only when the state physically possesses the savings bonds.

Federal Action
In the midst of the litigation, the U.S. Treasury issued regulations that it requires states seeking to redeem bonds to possess the bonds for which they claim title, and to produce evidence that the bonds have been abandoned by all those entitled to payment. The regulations clarify that Treasury will not recognize escheat judgments that convey custody, but not title, to a state. Further, escheat judgments that vest a state with titles to savings bonds that it does not possess will not be recognized.
I'm sure the states try really hard to find the rightful owners before escheating them, NOT! You cannot have escheating without cheating.

This seems to apply mostly to paper savings bonds, not Treasury Direct bonds, but could apply to both. Really, the government has your social security number and will stop paying that immediately on death. I think they could find the registered owner has died and inform the state probate courts, the funeral director or hospital that reported the deaths, or any any heirs really easily if they exerted a minimum of effort. Simple database lookup....

Maybe old paper bonds did not have a registered owner? But the article said
Savings bonds are registered securities, payable only to the registered owner, and generally are not transferable.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by anon_investor »

smectym wrote: Sun Apr 25, 2021 8:39 pm
anon_investor wrote: Sun Apr 25, 2021 6:14 pm
Jack FFR1846 wrote: Sun Apr 25, 2021 4:59 pm
anon_investor wrote: Wed Apr 21, 2021 2:30 pm My spouse and I have our own TD accounts, and we are each other's secondary owners each granted transaction rights. Which means we can see each other's I Bonds. If one of us predeceases the other, a death certificate and form to TD will transfer the I Bonds. Our "death book" includes an entry about our TD account and the existance of I Bonds. We are deferring the taxes, so at least that is easy to figure out. I think that is the best we can do.
I imagine there are going to be some amount of bonds that heirs never even know about if they're electronic. At least in paper form, they can be found in envelopes stuffed in an end table or a safe deposit box.

We're currently dealing with paper bonds bought by DW's grandparents. They were stuffed in a safe deposit box in the grandparents' names. They were inherited by one of their daughters who left them stuffed in a safe deposit box. Now we're having a lawyer handle them. Some were bought as long ago as 1943. Probates have to be re-opened because none of them were included in previous probates because, well, the old way was to hide everything from the government. But at least we know they exist.
I would think I Bonds and EE Bonds held at TD would be easier for heirs and executors to find. At least it's centralized. If old paper bonds are thrown out, how is anyone going to know they even existed?
We have both paper and electronic, and no doubt both will be a nightmare for heirs. Best case, I’ll live long enough for us to cash most of them in. No doubt somewhere there are statistics for permanently unredeemed savings bonds and I bet that number is not negligible
You can always mail in your paper I Bonds to TD to add to your TD account in the future.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by watchnerd »

SnowBog wrote: Sun Apr 25, 2021 5:27 pm LOL... 1 spouse. But each spouse can buy $10k, and if they have a living trust that's another $10k each. Combined that's 2 x $20k for each, so with one spouse that's $40k. Add another $5k via tax refunds, now your are $45k/year for a couple.
What is I'm in a polyamorous relationship with one spouse and one domestic partner?

Could I get $65k?

There may be a business model here...
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by 1955Chevy »

watchnerd wrote: Sun Apr 25, 2021 11:30 pm What is I'm in a polyamorous relationship with one spouse and one domestic partner?

Could I get $65k?

There may be a business model here...
No need for all the hoops and word games; just open up a second/multiple trusts.

Create a Simple Revocable Living Trust with Software for I Bonds - Harry Sit
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SantaClaraSurfer »

watchnerd wrote: Wed Apr 21, 2021 11:48 am But I struggle with how to evaluate EE returns in real terms.
I can offer three perspectives.

1. As a CA resident with a high tax rate, I evaluate EE Bonds this way.

ER = 0.0% (No money lost to ER.)
Non Marketable = As EE Bonds are not traded, the market environment won't impact an EE Bond investment
20 year Return = 3.526% paid at 20 years, guaranteed by US Treasury
20 year Tax Equivalent Yield at a 9% CA Tax rate is 3.526%/.91 which = a 3.87% Tax Equivalent Yield for Californians in high tax brackets

Main Risk = Whatever average inflation is over next 20 years will impact the real yield of the EE Bond (what you earn after inflation.) So 2% average inflation over the next 20 years means you will get a 1.87% real tax equivalent yield assuming you are paying 9% CA State Tax. Like many EE Bond Investors, I would take that. (It would mean that EE Bonds beat I Bonds, which I also purchase, over the same period.) In the case of 20 years of 3.87% average inflation the EE Bond returns 0% real yield, neither losing or gaining the investor anything. And anything greater than 3.87% average inflation means a negative real yield, and that is where I Bonds begin to surpass EE Bonds. (In the latter scenarios, however, you'd likely be looking at point 3 below about Yield to Maturity and Selling EE Bonds.)

Of course, this can also work the complete other way if inflation is very low or we have deflation. In that case current EE Bonds would be very desirable.

2. Another way to think about it is to calculate what it would look like if EE Bonds paid their interest in an annual coupon.

They don't, to be clear. You have to hold EE Bonds for 20 years to get the cumulative yield below. However, even from year one, it's clear that aside from I Bonds, few current Fixed Income investments are paying $358.25 per $10,000 in your first twelve months. This is one way to look at it. (However, note that the final return, calculated using an online calculator, might end up a few dollars more generous in year 20 due to compounding interest.)

Code: Select all

1	$10,000.00	$358.25		
2	$10,358.25	$371.11		
3	$10,729.34	$384.39		
4	$11,113.72	$398.16		
5	$11,511.87	$412.43	
6	$11,924.28	$427.19	
7	$12,351.47	$442.49	
8	$12,793.96	$458.33	
9	$13,252.31	$474.77	
10	$13,727.07	$491.77		
11	$14,218.85	$509.39		
12	$14,728.24	$527.62		
13	$15,255.88	$546.54
14	$15,802.42	$566.12		
15	$16,368.55	$586.40	
16	$16,954.95	$607.43	
17	$17,562.37	$629.18		
18	$18,191.54	$651.73	
19	$18,843.25	$675.06		
20	$19,518.32	$699.24	$20,217.56
(Interestingly for CA investors in high tax brackets, I'm currently seeing distribution payments of around $229 per year for $10,000 in CA LT Muni Bonds after fees (VCITX) which is the Tax Equivalent a 3.52% yield for someone with a Fed + State 35% Tax Rate. (2.29%/.65= 3.52%) And for higher tax brackets, the tax equivalent yield of CA LT Muni Bonds in VCITX currently beats EE Bonds. However, CA LT Munis are a very different Fixed Income investment from EE Bonds in that they involve the risk of investing in Investment Grade Municipal Bonds from a single state.)

3. EE Bond Options: Since EE Bonds are not marketable, EE Bond investors can sell at any point with 100% of principal recouped, and miniscule tax impact, if a product with a better yield to maturity emerges. So, if at 10 years, a 10 year Treasury bond with a rate of 7.2% is on offer, you can feel free to sell your EE Bond and purchase the 10 year Treasury, and you will beat EE Bonds since neither pay state tax. You can use the chart below to make up your mind about selling your EE Bonds, or whether you would likely do so at a certain point, regardless.

Code: Select all

Year	Balance	YTM	Ratio YTM
0	$1,000	1.0353	2.0000	3.526%
1	$1,001	1.0371	1.9980	3.710%
2	$1,002	1.0391	1.9960	3.914%
3	$1,003	1.0414	1.9940	4.143%
4	$1,004	1.0440	1.9920	4.401%
5	$1,005	1.0469	1.9900	4.695%
6	$1,006	1.0503	1.9880	5.031%
7	$1,007	1.0542	1.9861	5.420%
8	$1,008	1.0588	1.9841	5.876%
9	$1,009	1.0642	1.9821	6.417%
10	$1,010	1.0707	1.9801	7.070%
11	$1,011	1.0787	1.9781	7.874%
12	$1,012	1.0889	1.9762	8.887%
13	$1,013	1.1020	1.9742	10.204%
14	$1,014	1.1198	1.9722	11.985%
15	$1,015	1.1453	1.9702	14.526%
16	$1,016	1.1845	1.9683	18.446%
17	$1,017	1.2528	1.9663	25.281%
18	$1,018	1.4015	1.9643	40.155%
19	$1,019	1.9624	1.9624	96.238%
I may not have persuaded you that EE Bonds are right for you, but I hope you can see what they do and don't deliver, and what the particular risks and benefits of EE Bonds are.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

SantaClaraSurfer wrote: Thu Dec 02, 2021 7:43 pm
Great post!

Assuming you don't mind, I added it to the EE Bond Manifesto thread. viewtopic.php?p=6361929#p6361929
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Mel Lindauer »

SnowBog wrote: Thu Dec 02, 2021 8:35 pm
SantaClaraSurfer wrote: Thu Dec 02, 2021 7:43 pm
Great post!

Assuming you don't mind, I added it to the EE Bond Manifesto thread. viewtopic.php?p=6361929#p6361929
Good move, SnowBog. Feel free to do the same if/when you find solid info like this for the I Bond Manifesto thread.
Best Regards - Mel | | Semper Fi
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by loukycpa »

vineviz wrote: Tue Apr 20, 2021 8:39 am
SnowBog wrote: Tue Apr 20, 2021 12:17 am Not your first or only bonds. You should already own enough bonds for rebalancing your AA, as I/EE Bonds are not suitable for this purpose.
I just want to observe that it is true that savings bond are not generally suitable for rebalancing this is not a disadvantage: investors should not own bonds so that they can rebalance.
Would you also agree that as long as the investor has plenty of other bonds in their portfolio that are available for rebalance opportunities, then this shouldn't be a concern?

In other words, if the investor's target equity allocation is say 60% equities, as long as the investor has enough remaining in a bond fund (total bond for example) to be able to rebalance back to 60% equities, then it shouldn't matter, right?

Because of the 10k purchase limits many of us will never come close to getting all of our bond portfolio moved over to I or EE bonds.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

loukycpa wrote: Fri Dec 03, 2021 9:31 am
vineviz wrote: Tue Apr 20, 2021 8:39 am
SnowBog wrote: Tue Apr 20, 2021 12:17 am Not your first or only bonds. You should already own enough bonds for rebalancing your AA, as I/EE Bonds are not suitable for this purpose.
I just want to observe that it is true that savings bond are not generally suitable for rebalancing this is not a disadvantage: investors should not own bonds so that they can rebalance.
Would you also agree that as long as the investor has plenty of other bonds in their portfolio that are available for rebalance opportunities, then this shouldn't be a concern?

In other words, if the investor's target equity allocation is say 60% equities, as long as the investor has enough remaining in a bond fund (total bond for example) to be able to rebalance back to 60% equities, then it shouldn't matter, right?

Because of the 10k purchase limits many of us will never come close to getting all of our bond portfolio moved over to I or EE bonds.
Exactly! I Bonds can be a great addition. But they aren't what you should use for rebalancing (mainly due to the limits).

But having I Bonds + other bonds is a great option.

And my post was maybe too blunt... For those early accumulators that want to be 100/0 - excluding their EF - I Bonds may be their first/only bonds (as part of their EF). In that case, I consider them more "cash" then "bond", and they are still unsuitable for rebalancing, but that may not matter to a 100/0 young investor.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by prioritarian »

I-bonds are very poor diversifiers of equity returns. IMO, someone who has a high equity portfolio (e.g. >70%) may want to avoid I-bonds in order to optimize for diversification.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

prioritarian wrote: Fri Dec 03, 2021 11:55 am I-bonds are very poor diversifiers of equity returns. IMO, someone who has a high equity portfolio (e.g. >70%) may want to avoid I-bonds in order to optimize for diversification.
Well, now we are back to my earlier point...

Someone with a 70/30 AA should not be attempting to have the 30% be I Bonds.

Likely the bulk of the 30% should be other forms of fixed income, such as other bonds, to enable them to rebalance as needed. And for rebalancing purposes, I Bonds are not what you should be using.

But having a portion of the 30% in I Bonds adds its own diversification - to the other bonds at least. Typically when interest rates go up, most bond values fall as people no longer want the older bonds paying less. But since I Bonds aren't "marketable" their value doesn't change - but they'll get more interest due to the higher rates.

So IMHO it is not I Bonds or a different fixed income option, it's typically another fixed income option and I Bonds (for those interested in I Bonds).
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by prioritarian »

SnowBog wrote: Fri Dec 03, 2021 12:35 pm
prioritarian wrote: Fri Dec 03, 2021 11:55 am I-bonds are very poor diversifiers of equity returns. IMO, someone who has a high equity portfolio (e.g. >70%) may want to avoid I-bonds in order to optimize for diversification.
Well, now we are back to my earlier point...

Someone with a 70/30 AA should not be attempting to have the 30% be I Bonds.

Likely the bulk of the 30% should be other forms of fixed income, such as other bonds, to enable them to rebalance as needed. And for rebalancing purposes, I Bonds are not what you should be using.

But having a portion of the 30% in I Bonds adds its own diversification - to the other bonds at least. Typically when interest rates go up, most bond values fall as people no longer want the older bonds paying less. But since I Bonds aren't "marketable" their value doesn't change - but they'll get more interest due to the higher rates.

So IMHO it is not I Bonds or a different fixed income option, it's typically another fixed income option and I Bonds (for those interested in I Bonds).
Given the choice of liquid inflation protection with a market price (a component of total return for multi-bond holdings) versus an illiquid asset that is quantity limited. I think TIP bonds are better way to buy inflation protection. Afterall, mid (SCHP) and long duration TIPs ETFs (LTPZ) have had a 52 week total return of 7.1 and 7.3% respectively according to FIDO.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

prioritarian wrote: Fri Dec 03, 2021 1:14 pm
SnowBog wrote: Fri Dec 03, 2021 12:35 pm
prioritarian wrote: Fri Dec 03, 2021 11:55 am I-bonds are very poor diversifiers of equity returns. IMO, someone who has a high equity portfolio (e.g. >70%) may want to avoid I-bonds in order to optimize for diversification.
Well, now we are back to my earlier point...

Someone with a 70/30 AA should not be attempting to have the 30% be I Bonds.

Likely the bulk of the 30% should be other forms of fixed income, such as other bonds, to enable them to rebalance as needed. And for rebalancing purposes, I Bonds are not what you should be using.

But having a portion of the 30% in I Bonds adds its own diversification - to the other bonds at least. Typically when interest rates go up, most bond values fall as people no longer want the older bonds paying less. But since I Bonds aren't "marketable" their value doesn't change - but they'll get more interest due to the higher rates.

So IMHO it is not I Bonds or a different fixed income option, it's typically another fixed income option and I Bonds (for those interested in I Bonds).
Given the choice of liquid inflation protection with a market price (a component of total return for multi-bond holdings) versus an illiquid asset that is quantity limited. I think TIP bonds are better way to buy inflation protection. Afterall, mid (SCHP) and long duration TIPs ETFs (LTPZ) have had a 52 week total return of 7.1 and 7.3% respectively according to FIDO.
Potentially - but for many there are other factors to consider. For example, to maintain my AA (60/40) I need to add bonds into taxable. No way would I purchase TIPS in taxable... But I'd happily purchase I Bonds - as they give me both inflation and deflation protection - and extend out my tax-deferred space.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by ivgrivchuck »

prioritarian wrote: Fri Dec 03, 2021 1:14 pm
SnowBog wrote: Fri Dec 03, 2021 12:35 pm
prioritarian wrote: Fri Dec 03, 2021 11:55 am I-bonds are very poor diversifiers of equity returns. IMO, someone who has a high equity portfolio (e.g. >70%) may want to avoid I-bonds in order to optimize for diversification.
Well, now we are back to my earlier point...

Someone with a 70/30 AA should not be attempting to have the 30% be I Bonds.

Likely the bulk of the 30% should be other forms of fixed income, such as other bonds, to enable them to rebalance as needed. And for rebalancing purposes, I Bonds are not what you should be using.

But having a portion of the 30% in I Bonds adds its own diversification - to the other bonds at least. Typically when interest rates go up, most bond values fall as people no longer want the older bonds paying less. But since I Bonds aren't "marketable" their value doesn't change - but they'll get more interest due to the higher rates.

So IMHO it is not I Bonds or a different fixed income option, it's typically another fixed income option and I Bonds (for those interested in I Bonds).
Given the choice of liquid inflation protection with a market price (a component of total return for multi-bond holdings) versus an illiquid asset that is quantity limited. I think TIP bonds are better way to buy inflation protection. Afterall, mid (SCHP) and long duration TIPs ETFs (LTPZ) have had a 52 week total return of 7.1 and 7.3% respectively according to FIDO.
If I buy an i-bond today, I can liquidate it on any day between 1-30 years, and I am guaranteed that the money I receive on that day has fully retained its purchasing power.

If I buy a 20 year TIP and I need the money earlier (later), the purchasing power may significantly differ from the original amount.

Of course if one is counting on negative correlation between stocks and bonds, that doesn't work with i-bonds.

In the end: Choose what works best for your financial plan...
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by absolute zero »

loukycpa wrote: Fri Dec 03, 2021 9:31 am Because of the 10k purchase limits many of us will never come close to getting all of our bond portfolio moved over to I or EE bonds.
If married, you could buy $200k worth of I bonds TODAY ($200k is just an example...could also pick any other random number).

Steps to purchase $200k in I bonds:
1) Open a TD account for you, and a TD account for your spouse.
2) Purchase $10k of I bonds in your account and $10k of I bonds in spouse's account.
3) Purchase $90k worth of I bonds as a gift for your spouse. Use spouse's account to purchase $90k of I bonds as a gift to yourself. Keep this money in gift box, undelivered.
4) Each year for the next 10 years, "deliver" $10k worth of I bonds from your account to spouse's account. And vice versa.

The $200k in i bonds will start earning interest immediately. Money will be illiquid until delivered, but if it's a long term investment then who cares. Can be redeemed/spent immediately upon delivery, or left alone to continue earning interest. This method is discussed further in thread below.

viewtopic.php?t=306297
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riverant
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by riverant »

absolute zero wrote: Fri Dec 03, 2021 2:45 pm
loukycpa wrote: Fri Dec 03, 2021 9:31 am Because of the 10k purchase limits many of us will never come close to getting all of our bond portfolio moved over to I or EE bonds.
If married, you could buy $200k worth of I bonds TODAY ($200k is just an example...could also pick any other random number).

Steps to purchase $200k in I bonds:
1) Open a TD account for you, and a TD account for your spouse.
2) Purchase $10k of I bonds in your account and $10k of I bonds in spouse's account.
3) Purchase $90k worth of I bonds as a gift for your spouse. Use spouse's account to purchase $90k of I bonds as a gift to yourself. Keep this money in gift box, undelivered.
4) Each year for the next 10 years, "deliver" $10k worth of I bonds from your account to spouse's account. And vice versa.

The $200k in i bonds will start earning interest immediately. Money will be illiquid until delivered, but if it's a long term investment then who cares. Can be redeemed/spent immediately upon delivery, or left alone to continue earning interest. This method is discussed further in thread below.

viewtopic.php?t=306297
Dare I say…the “backdoor” i-bonds purchase?

For myself with a very stock heavy allocation in my peak accumulation years, I just can’t get excited about locking in a 0% real return. I’d rather buy shares of VTI at whatever price it is now or might be tomorrow.

I could see it making sense as a 2nd tier emergency fund or if you’d like to diversify an already moderate fixed income portfolio in tax deferred space.
HerbsKid
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Joined: Sun Jul 29, 2018 12:54 pm

Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by HerbsKid »

Along the lines of the earlier comments about the discontinuation of paper savings bonds (both I and EE):

There have been discussion threads elsewhere on Bogleheads about the lack of protections and guarantees that TreasuryDirect.gov offers for cases of account hacking and identity theft:

viewtopic.php?f=10&t=225415

It would be nice if they were available through widely used online brokerages like Schwab, Fidelity, etc.
SnowBog
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

HerbsKid wrote: Fri Dec 03, 2021 3:08 pm Along the lines of the earlier comments about the discontinuation of paper savings bonds (both I and EE):

There have been discussion threads elsewhere on Bogleheads about the lack of protections and guarantees that TreasuryDirect.gov offers for cases of account hacking and identity theft:

viewtopic.php?f=10&t=225415

It would be nice if they were available through widely used online brokerages like Schwab, Fidelity, etc.
For what it's - I find the dichotomy in these "lack of protections" vs. the "TreasuryDirect requires me to get a Medalion Signature because they can't verify my information or a I want to add a new bank account" ironic...

For the former - from my understanding - the protections are very similar to what I see at other institutions - they all generally stop short of saying that if you share your password with someone/something - and thus have money taken using a password that you shared - that's they'll make you whole - as arguably that's not their problem. But I've yet to see any evidence of having a legitimate account breach not be addressed. Now to contrast this to what I understand was the "protections" on paper bonds - where as I understand it - you could have left your paper bonds sitting on an open cabinet and if a guest walked into your house - grabbed one - and cashed it - the Treasury Department would reissue you a new one. Yep - that same level of protection is gone - but that was an unbelievable level of protection - not available on anything else - so IMHO a slightly skewed comparison point.

For the later - most people complain that these things are too much work - without giving credit for the protection it enables. (To some extent - this is true for the people that complain about the virtual keyboard you have to use to enter your password - again done as a protection against keyloggers/etc.).

And when you connect these with these together - someone would need to gain access to your account - and then either gain access to your bank - or be successful in getting a medallion signature to add a new bank account (and you not noticing) - to be able to get your funds out of TreasuryDirect. For my 2 cents - that's far better protection than offered at places like Fidelity/Schwab/etc. Were someone to access my brokerage account - they could add a bank account - and while I'd get a notice they did so - there is usually no extra verification/etc. required (other than proving they have access to the bank account - such as logging in and/or doing the deposit verification).

That said - yes - I'd like to have access to these at places like Fidelity/etc. But seeing as they can't make money on them - and making them available at other places would likely cost the Treasury money - I'm completely OK that they are exclusive to the TD website.
prioritarian
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by prioritarian »

SnowBog wrote: Fri Dec 03, 2021 1:37 pm
prioritarian wrote: Fri Dec 03, 2021 1:14 pm
SnowBog wrote: Fri Dec 03, 2021 12:35 pm
prioritarian wrote: Fri Dec 03, 2021 11:55 am I-bonds are very poor diversifiers of equity returns. IMO, someone who has a high equity portfolio (e.g. >70%) may want to avoid I-bonds in order to optimize for diversification.
Well, now we are back to my earlier point...

Someone with a 70/30 AA should not be attempting to have the 30% be I Bonds.

Likely the bulk of the 30% should be other forms of fixed income, such as other bonds, to enable them to rebalance as needed. And for rebalancing purposes, I Bonds are not what you should be using.

But having a portion of the 30% in I Bonds adds its own diversification - to the other bonds at least. Typically when interest rates go up, most bond values fall as people no longer want the older bonds paying less. But since I Bonds aren't "marketable" their value doesn't change - but they'll get more interest due to the higher rates.

So IMHO it is not I Bonds or a different fixed income option, it's typically another fixed income option and I Bonds (for those interested in I Bonds).
Given the choice of liquid inflation protection with a market price (a component of total return for multi-bond holdings) versus an illiquid asset that is quantity limited. I think TIP bonds are better way to buy inflation protection. Afterall, mid (SCHP) and long duration TIPs ETFs (LTPZ) have had a 52 week total return of 7.1 and 7.3% respectively according to FIDO.
Potentially - but for many there are other factors to consider. For example, to maintain my AA (60/40) I need to add bonds into taxable. No way would I purchase TIPS in taxable... But I'd happily purchase I Bonds - as they give me both inflation and deflation protection - and extend out my tax-deferred space.
Isn't the interest from I bonds handled identically to the dividends on a TIPs fund (e.g. fed taxable, state exempt)?
SnowBog
Posts: 4700
Joined: Fri Dec 21, 2018 10:21 pm

Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

prioritarian wrote: Fri Dec 03, 2021 4:15 pm
SnowBog wrote: Fri Dec 03, 2021 1:37 pm
prioritarian wrote: Fri Dec 03, 2021 1:14 pm
SnowBog wrote: Fri Dec 03, 2021 12:35 pm
prioritarian wrote: Fri Dec 03, 2021 11:55 am I-bonds are very poor diversifiers of equity returns. IMO, someone who has a high equity portfolio (e.g. >70%) may want to avoid I-bonds in order to optimize for diversification.
Well, now we are back to my earlier point...

Someone with a 70/30 AA should not be attempting to have the 30% be I Bonds.

Likely the bulk of the 30% should be other forms of fixed income, such as other bonds, to enable them to rebalance as needed. And for rebalancing purposes, I Bonds are not what you should be using.

But having a portion of the 30% in I Bonds adds its own diversification - to the other bonds at least. Typically when interest rates go up, most bond values fall as people no longer want the older bonds paying less. But since I Bonds aren't "marketable" their value doesn't change - but they'll get more interest due to the higher rates.

So IMHO it is not I Bonds or a different fixed income option, it's typically another fixed income option and I Bonds (for those interested in I Bonds).
Given the choice of liquid inflation protection with a market price (a component of total return for multi-bond holdings) versus an illiquid asset that is quantity limited. I think TIP bonds are better way to buy inflation protection. Afterall, mid (SCHP) and long duration TIPs ETFs (LTPZ) have had a 52 week total return of 7.1 and 7.3% respectively according to FIDO.
Potentially - but for many there are other factors to consider. For example, to maintain my AA (60/40) I need to add bonds into taxable. No way would I purchase TIPS in taxable... But I'd happily purchase I Bonds - as they give me both inflation and deflation protection - and extend out my tax-deferred space.
Isn't the interest from I bonds handled identically to the dividends on a TIPs fund (e.g. fed taxable, state exempt)?
Yes - and no...

As you noted - both are federally taxable and state exempt...

But the mechanics are significantly different. https://www.bogleheads.org/wiki/I_Bonds_vs_TIPS

For TIPS:
Semiannual interest payments and inflation adjustments that increase the principal are subject to federal tax in the year that they occur, but are exempt from state and local income taxes.
Basically, you are [potentially] paying taxes on TIPS in taxable every year even if you don't sell the funds. IIRC - you don't get a "credit" if the TIPS value falls... So you are taxed on the upside, with no relief on the downside [unless you sell at a loss - and then you have TLH I guess]. So its a big tax drag for many people...

By contrast, I Bonds:
Semiannual interest payments and inflation adjustments that increase the principal are subject to federal tax in the year that they occur, but are exempt from state and local income taxes.
Again, I Bonds effectively extend your tax-deferred space. By default you do not pay taxes on I Bond interest until you sell (or they reach the 30-year maturity).

So in taxable, I Bonds are better - by a long shot...
absolute zero
Posts: 1244
Joined: Thu Dec 29, 2016 3:59 pm

Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by absolute zero »

prioritarian wrote: Fri Dec 03, 2021 4:15 pm
SnowBog wrote: Fri Dec 03, 2021 1:37 pm
prioritarian wrote: Fri Dec 03, 2021 1:14 pm
SnowBog wrote: Fri Dec 03, 2021 12:35 pm
prioritarian wrote: Fri Dec 03, 2021 11:55 am I-bonds are very poor diversifiers of equity returns. IMO, someone who has a high equity portfolio (e.g. >70%) may want to avoid I-bonds in order to optimize for diversification.
Well, now we are back to my earlier point...

Someone with a 70/30 AA should not be attempting to have the 30% be I Bonds.

Likely the bulk of the 30% should be other forms of fixed income, such as other bonds, to enable them to rebalance as needed. And for rebalancing purposes, I Bonds are not what you should be using.

But having a portion of the 30% in I Bonds adds its own diversification - to the other bonds at least. Typically when interest rates go up, most bond values fall as people no longer want the older bonds paying less. But since I Bonds aren't "marketable" their value doesn't change - but they'll get more interest due to the higher rates.

So IMHO it is not I Bonds or a different fixed income option, it's typically another fixed income option and I Bonds (for those interested in I Bonds).
Given the choice of liquid inflation protection with a market price (a component of total return for multi-bond holdings) versus an illiquid asset that is quantity limited. I think TIP bonds are better way to buy inflation protection. Afterall, mid (SCHP) and long duration TIPs ETFs (LTPZ) have had a 52 week total return of 7.1 and 7.3% respectively according to FIDO.
Potentially - but for many there are other factors to consider. For example, to maintain my AA (60/40) I need to add bonds into taxable. No way would I purchase TIPS in taxable... But I'd happily purchase I Bonds - as they give me both inflation and deflation protection - and extend out my tax-deferred space.
Isn't the interest from I bonds handled identically to the dividends on a TIPs fund (e.g. fed taxable, state exempt)?
Yes but taxes can be deferred for I bonds. The same can’t be said about TIPS.
absolute zero
Posts: 1244
Joined: Thu Dec 29, 2016 3:59 pm

Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by absolute zero »

prioritarian wrote: Fri Dec 03, 2021 1:14 pm
SnowBog wrote: Fri Dec 03, 2021 12:35 pm
prioritarian wrote: Fri Dec 03, 2021 11:55 am I-bonds are very poor diversifiers of equity returns. IMO, someone who has a high equity portfolio (e.g. >70%) may want to avoid I-bonds in order to optimize for diversification.
Well, now we are back to my earlier point...

Someone with a 70/30 AA should not be attempting to have the 30% be I Bonds.

Likely the bulk of the 30% should be other forms of fixed income, such as other bonds, to enable them to rebalance as needed. And for rebalancing purposes, I Bonds are not what you should be using.

But having a portion of the 30% in I Bonds adds its own diversification - to the other bonds at least. Typically when interest rates go up, most bond values fall as people no longer want the older bonds paying less. But since I Bonds aren't "marketable" their value doesn't change - but they'll get more interest due to the higher rates.

So IMHO it is not I Bonds or a different fixed income option, it's typically another fixed income option and I Bonds (for those interested in I Bonds).
Given the choice of liquid inflation protection with a market price (a component of total return for multi-bond holdings) versus an illiquid asset that is quantity limited. I think TIP bonds are better way to buy inflation protection. Afterall, mid (SCHP) and long duration TIPs ETFs (LTPZ) have had a 52 week total return of 7.1 and 7.3% respectively according to FIDO.
The returns over the past year are meaningless for any asset class, but especially so for treasuries since the return is contractual and thus guaranteed if the bond is held to maturity. For a 20 year TIPS the real yield is currently -0.75%. This is what should be used as a return expectation. Compare that with 0% real yield for I bonds, and we have a 75 bps I bond advantage. For some, the lack of volatility of I bonds is an advantage as well (though for some others it could be a disadvantage).
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