New I-bond rate: 3.54%

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New I-bond rate: 3.54%

Post by jhogue » Tue Apr 13, 2021 12:39 pm

Tipswatch has announced that the new variable component of I-bonds will reset to 3.54% on May 1, 2021. Even if the new fixed rate is announced as 0%, that means that the composite rate for the next six months of I-bonds is guaranteed to be at least 3.54%.

1. If you have not yet purchased your quota of electronic I-bonds ($10,000) for this year, wait until at least May 1, since (the old rate is 1.68%.

2. If you have not yet filed your 2020 Federal income tax return, you can request an extension, overpay your refund by $5,000, and file after May 1. That will allow you to pick up an additional $5,000 in paper I-bonds this year with the guaranteed new rate of 3.54%.

3. Note this announcement is not all good news for everybody. The BLS inflation figures that are raising I-bond rates are signalling higher inflation ahead in the US money markets and-- by extension--the overall economy. It is also blinking a warning light at the Biden administration's proposed spending plans. For those who cannot remember the 1970s, inflation is terrible for intermediate and long-term bonds, as well as investors living on fixed incomes.
Last edited by jhogue on Tue Apr 13, 2021 12:52 pm, edited 1 time in total.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I-bond rate: 3.54%

Post by Xan » Tue Apr 13, 2021 12:51 pm

Really appreciate your I-bond updates and generally keeping these great financial tools top-of-mind around here, jhogue.
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Re: New I-bond rate: 3.54%

Post by vnatale » Tue Apr 13, 2021 3:13 pm

jhogue wrote:
Tue Apr 13, 2021 12:39 pm

Tipswatch has announced that the new variable component of I-bonds will reset to 3.54% on May 1, 2021. Even if the new fixed rate is announced as 0%, that means that the composite rate for the next six months of I-bonds is guaranteed to be at least 3.54%.

1. If you have not yet purchased your quota of electronic I-bonds ($10,000) for this year, wait until at least May 1, since (the old rate is 1.68%.

2. If you have not yet filed your 2020 Federal income tax return, you can request an extension, overpay your refund by $5,000, and file after May 1. That will allow you to pick up an additional $5,000 in paper I-bonds this year with the guaranteed new rate of 3.54%.

3. Note this announcement is not all good news for everybody. The BLS inflation figures that are raising I-bond rates are signalling higher inflation ahead in the US money markets and-- by extension--the overall economy. It is also blinking a warning light at the Biden administration's proposed spending plans. For those who cannot remember the 1970s, inflation is terrible for intermediate and long-term bonds, as well as investors living on fixed incomes.


Regarding 2...

First....correct me if I am wrong but everyone has automatically been "extended" by the IRS from April 15th to May 15th?

Finally, just prior to reading this from you I had the intention of my next action after reading unread messages in this forum was to send another $5,000 estimated tax payment to the IRS for 2020. Hopefully, this time they actually buy the iBonds for me rather than sending it all back to me in the form of a refund!

And, really finally. Many thanks for keeping us informed in timing of purchases EXTREMELY helpful! Thanks again!
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: New I-bond rate: 3.54%

Post by jhogue » Tue Apr 13, 2021 3:52 pm

Vinny,

1. You are correct. Every tax filer has until May 15 2021 to file their 2020 tax form with the IRS this year. An extension form can be returned with the $5,000 overpayment in addition to any tax that you may already owe. I use Turbotax software and have found filing an extension with my overpayment to be easy.

2. I have heard several complaints—like yours—that some 2019 tax filers did not properly get their refund in the form of paper I-bonds. Also, a number of returns (including my own) were not processed on time and the IRS was forced to pay 5% p.a. interest on them. I have not been able to get to the bottom of it, but I suspect that the agency was thrown into chaos due to the effects of the pandemic on the IRS’s labor force. I hope this tax season will go more smoothly for us all. I am sorry that you did not get your extra $5,000 in I-bonds, but I am glad you got your full refund back.

3. Please note that I am not a tax attorney, CPA, or enrolled agent with the IRS and I do not give tax or financial advice.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I-bond rate: 3.54%

Post by Kriegsspiel » Tue Apr 13, 2021 6:28 pm

Good looking out jhogue.

You're a good bro.
You there, Ephialtes. May you live forever.
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Re: New I-bond rate: 3.54%

Post by vnatale » Tue Apr 13, 2021 6:48 pm

jhogue wrote:
Tue Apr 13, 2021 3:52 pm

Vinny,

1. You are correct. Every tax filer has until May 15 2021 to file their 2020 tax form with the IRS this year. An extension form can be returned with the $5,000 overpayment in addition to any tax that you may already owe. I use Turbotax software and have found filing an extension with my overpayment to be easy.

2. I have heard several complaints—like yours—that some 2019 tax filers did not properly get their refund in the form of paper I-bonds. Also, a number of returns (including my own) were not processed on time and the IRS was forced to pay 5% p.a. interest on them. I have not been able to get to the bottom of it, but I suspect that the agency was thrown into chaos due to the effects of the pandemic on the IRS’s labor force. I hope this tax season will go more smoothly for us all. I am sorry that you did not get your extra $5,000 in I-bonds, but I am glad you got your full refund back.

3. Please note that I am not a tax attorney, CPA, or enrolled agent with the IRS and I do not give tax or financial advice.


Using EFTPS, which I set myself up with years and years ago, I finished paying off 2020 taxes, paid the $5,000, and made some payment towards 2021 taxes.

My goal is to file (using H&R Block software) by May 15, 2021. It used to be that I was forever filing late. Usually in August but sometimes right to the deadline in October. Mostly because I was too busy taking care of other peoples' business. But, at some point, I made it a priority to get mine filed without extensions and have been successfully doing so for many years now.

I also did receive interest from the IRS due to what they deemed as a refund rather than a purchase of iBonds.

Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: New I-bond rate: 3.54%

Post by sophie » Tue Apr 13, 2021 10:01 pm

jhogue wrote:
Tue Apr 13, 2021 12:39 pm
Tipswatch has announced that the new variable component of I-bonds will reset to 3.54% on May 1, 2021. Even if the new fixed rate is announced as 0%, that means that the composite rate for the next six months of I-bonds is guaranteed to be at least 3.54%.

1. If you have not yet purchased your quota of electronic I-bonds ($10,000) for this year, wait until at least May 1, since (the old rate is 1.68%.

2. If you have not yet filed your 2020 Federal income tax return, you can request an extension, overpay your refund by $5,000, and file after May 1. That will allow you to pick up an additional $5,000 in paper I-bonds this year with the guaranteed new rate of 3.54%.

3. Note this announcement is not all good news for everybody. The BLS inflation figures that are raising I-bond rates are signalling higher inflation ahead in the US money markets and-- by extension--the overall economy. It is also blinking a warning light at the Biden administration's proposed spending plans. For those who cannot remember the 1970s, inflation is terrible for intermediate and long-term bonds, as well as investors living on fixed incomes.
Thanks for this Jhogue! 3.54%.....wow. Hang on to those I Bonds everyone!

If Biden's reckless tax and spend plan passes, on top of inflation heating up....oh yes the 70's stagflation could happen again, although I know some on the forum think otherwise. Yes, it'll be death for pure stock and bond portfolios but that's why we hold gold. The PP will do just fine.
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Re: New I-bond rate: 3.54%

Post by jhogue » Thu Apr 15, 2021 9:05 am

Xan wrote:
Tue Apr 13, 2021 12:51 pm
Really appreciate your I-bond updates and generally keeping these great financial tools top-of-mind around here, jhogue.
Thanks, Xan.

1. I continue to regard I-bonds as the “swiss army knife” of Cash. They come with multiple unique and cool functions, such as:
-30 years federal tax deferral
-30 years exemption from state and local taxes
-30 years inflation protection

2. Given the purchase limit on I-bonds ($10K/year/SSN), my strategy of choice is to build a dedicated I-bond ladder over time. My EE bonds were designated to tax-free funding my daughter’s college more than 10 years ago. My I-bonds are designated to helping me put off making premature withdrawals from my PP in retirement.

3. I-bonds are free lunch for the middle class: Accumulating I-bonds won’t make you rich, but they may keep you from making mistakes with the Cash portion of your portfolio. Over the past few years I have heard some investors advocate buying 5 year CDs for Cash. I think that is a bad idea. Even if they are breakable, intermediate term CDs are not federally tax deferred; are not exempt from state and local taxes; and are not inflation protected. Fundamentally, a US Treasury guarantee is superior to FDIC insurance. On top of everything else, 5 year CDs are virtually guaranteed to underperform in an inflationary environment, as we are currently observing.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I-bond rate: 3.54%

Post by ppnewbie » Fri Apr 16, 2021 12:59 am

jhogue wrote:
Tue Apr 13, 2021 12:39 pm
Tipswatch has announced that the new variable component of I-bonds will reset to 3.54% on May 1, 2021. Even if the new fixed rate is announced as 0%, that means that the composite rate for the next six months of I-bonds is guaranteed to be at least 3.54%.

1. If you have not yet purchased your quota of electronic I-bonds ($10,000) for this year, wait until at least May 1, since (the old rate is 1.68%.

2. If you have not yet filed your 2020 Federal income tax return, you can request an extension, overpay your refund by $5,000, and file after May 1. That will allow you to pick up an additional $5,000 in paper I-bonds this year with the guaranteed new rate of 3.54%.

3. Note this announcement is not all good news for everybody. The BLS inflation figures that are raising I-bond rates are signalling higher inflation ahead in the US money markets and-- by extension--the overall economy. It is also blinking a warning light at the Biden administration's proposed spending plans. For those who cannot remember the 1970s, inflation is terrible for intermediate and long-term bonds, as well as investors living on fixed incomes.
Thanks! I was just wondering what the new rate was going to be.
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Re: New I-bond rate: 3.54%

Post by jhogue » Mon May 03, 2021 11:17 am

TreasuryDirect has set the new fixed rate for I bonds at 0.0%. Combined with the previous announced variable rate, the composite rate for newly purchased I bonds will be 3.54% for the next 6 months, as expected. Because the yield is guaranteed not to fall below zero, the yield for the next 12 months will be at least 1.77%.

The rate for EE bonds remains at 0.1%. If held for 20 years, they are guaranteed to double in value for a final yield of 3.54%.

The annual limit of $10,000 per Social Security number for each series savings bond remains in place, as does the $5,000 annual cap on paper I-bonds purchased with your tax refund.

See details at:
https://www.treasurydirect.gov/indiv/re ... dterms.htm

As we have discussed here previously, I-bonds can be an ultra low-risk enhancement for the Cash quadrant of the HBPP. The current yield is better than any US Treasury security, and even the best 1- and 5-year brokerage CDs.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I-bond rate: 3.54%

Post by barrett » Mon May 03, 2021 3:43 pm

Thanks for the reminder jhogue! Buying I-Bonds via Treasury Direct is on my to-do list for this week. As of today, one can now see the updated interest rates on their calculator that take that 3.54% inflation component into account. If I plug in 10/2021, I see a bunch of my I-Bonds purchased 20 years ago up around 7%. And, yes, I realize that's because we have a whiff of inflation.

I actually have a bit of Saving Bonds melancholy today. Just redeemed ten EEs that I bought in May of 1991. I remember walking into a bank to buy those 30 years ago. Damn, time goes by too quickly.

Anyway, time to reload!
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Re: New I-bond rate: 3.54%

Post by jhogue » Tue May 04, 2021 8:53 am

1. I submitted my IRS Form 1040 via Turbotax yesterday, along with my request for tax refund in the form of this year's quota of paper I-bonds.Given the IRS's problems issuing refunds last year, I will be watching to see how smoothly I-bond issuance proceeds this year.

2. I share the nostalgia for paper savings bonds. I can still remember going to the bank five years ago to redeem the last of my father-in-law's paper EE bonds.He had died long before, but left each of his adult children some EE's back in the day you could convert them to POD and get them re-issued in paper form. Something like holding a 100-year old Gold coin in your hand.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I-bond rate: 3.54%

Post by barrett » Tue May 04, 2021 12:23 pm

jhogue wrote:
Tue May 04, 2021 8:53 am
I share the nostalgia for paper savings bonds. I can still remember going to the bank five years ago to redeem the last of my father-in-law's paper EE bonds.He had died long before, but left each of his adult children some EE's back in the day you could convert them to POD and get them re-issued in paper form. Something like holding a 100-year old Gold coin in your hand.
Thanks for sharing, jhogue. Its amazing how almost every investor seems to brush aside the idea of even considering EE & I-Bonds. I was talking with a friend yesterday and he told me that his daughter got a EE-Bond as a gift when she was born. He cashed it in when his daughter turned 18. He said that the gain was only about 20% after 18 years. Sigh. I have three or four other friends whose eyes routinely glaze over at the very mention of US Savings Bonds.

My nominal pre-tax gain on those 1991 bonds was $1,573 for each $500 invested. The 1990s and early 2000s were bery bery good times to be buying these things.

I did buy my $10,000 TD I-Bond allotment yesterday. I always read how the TD website is "clunky" but it was very straight forward. I had hesitated adding another online investment as my wife doesn't really care to focus on this stuff. But I'll wear her down eventually! Going to get another $10,000 in her name soon.
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Re: New I-bond rate: 3.54%

Post by boglerdude » Wed May 05, 2021 10:05 am

Fed cant buy ibonds and push down that yield?
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Re: New I-bond rate: 3.54%

Post by jhogue » Wed May 05, 2021 11:55 am

boglerdude wrote:
Wed May 05, 2021 10:05 am
Fed cant buy ibonds and push down that yield?
In a word, no.

As you imply, the Fed could adjust the yield on, for instance, 1-year Treasury bills by selling them at auction or buying and selling on the secondary market. The yield on new I-bonds is fixed and guaranteed by the Treasury twice each year, on 1 May and 1 November, and there is no secondary market.

The existence of this unique feature explains why the Treasury caps individual purchases of US savings bonds.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I-bond rate: 3.54%

Post by vnatale » Wed May 05, 2021 12:01 pm

Just checking...

The clear exhortation here is to buy 2021's $10,000 allotment as soon as possible?

I do intend to file my tax return by the due date of May 17, 2021 with directing $5,000 of the refund going to buy my other allotment. Hopefully, this time around they don't do the same thing as last year, where, instead of buying the bonds, they just returned to me the $5,000 (with interest!).
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: New I-bond rate: 3.54%

Post by jhogue » Wed May 05, 2021 12:29 pm

@ Vinny:

1. I-bonds that you buy in your Treasury Direct account after 1 May 2021 will yield 3.54% for the next 6 months.

2. In addition to the above, you can buy $5,000 in I-bonds with your 2020 tax refund. They will also yield 3.54% for the next 6 months. IRS form 8888 has purchase instructions. I bought mine when I e-filed with Turbotax two days ago and encountered no difficulties in filing or alloting my refund. The file/refund page on Turbotax said I should receive my refund in approx. 21 days.
Last edited by jhogue on Wed May 05, 2021 2:19 pm, edited 1 time in total.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I-bond rate: 3.54%

Post by vnatale » Wed May 05, 2021 12:36 pm

jhogue wrote:
Wed May 05, 2021 12:29 pm

@ Vinny:

1. I-bonds that you buy in your Treasury Direct account after 1 May 2021 will yield 3.54% for the next 6 months.

2. In addition to the above, your can buy $5,000 in I-bonds with your 2020 tax refund. They will also yield 3.54% for the next 6 months. IRS form 8888 has purchase instructions. I bought mine when I e-filed with Turbotax two days ago and encountered no difficulties in filing or alloting my refund. The file/refund page on Turbotax said I should receive my refund in approx. 21 days.


Thanks to your prodding I will make the $10,000 purchase in the next day or two.

I use H8R Block's tax software product. Anyone else use it successfully to make the $5,000 investment? I seem to remember having no issue filling out the Form 8888 but then there was nowhere on the 1040 that showed my $5,000 refund being diverted for the purchase? Just going by memory. I'll report later when I am actually doing it for 2020.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: New I-bond rate: 3.54%

Post by jhogue » Wed May 05, 2021 12:49 pm

@ Vinny:

Sorry, I have never tried H&R Block software.


Turbotax shows Balance/Refund on the front page of its instructions and in the IRS Form 1040.

See IRS Form 1040-SR (2020) page 3:
-Refund Line 34: If line 33 is more than line 24, subtract line 24 from line 33. This is the
amount you overpaid
-Line 35a: Amount of line 34 you want refunded to you. IF Form 8888 is attached, check here...
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I-bond rate: 3.54%

Post by barrett » Wed May 05, 2021 1:08 pm

jhogue,

Quick question...

Aren't you retired? If so, how are you pulling off the tax refund paper I-Bond deal each year? I think you've written that you overpay your tax. But that must be by thousands of dollars, right?
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Re: New I-bond rate: 3.54%

Post by vnatale » Wed May 05, 2021 1:31 pm

jhogue wrote:
Wed May 05, 2021 12:49 pm

@ Vinny:

Sorry, I have never tried H&R Block software.


Turbotax shows Balance/Refund on the front page of its instructions and in the IRS Form 1040.

See IRS Form 1040-SR (2020) page 3:
-Refund Line 34: If line 33 is more than line 24, subtract line 24 from line 33. This is the
amount you overpaid
-Line 35a: Amount of line 34 you want refunded to you. IF Form 8888 is attached, check here...


Again you prodded me to do what I should be doing.

I just went back to my 2019 return:

Capture.JPG
Capture.JPG (37.17 KiB) Viewed 7765 times


That led me to finally discovered what must have been the problem. Operator error!

While I DID have a From 8888 attached, I DID NOT "check here"!

Thanks again for prodding to look at this now. Hopefully, that will be the last time in my life that I make that particular mistake.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: New I-bond rate: 3.54%

Post by Xan » Wed May 05, 2021 1:58 pm

Vinny,

One other thought: last year I was similar to you, where I had an amount over $5,000 that I had overpaid, and I requested $5,000 in I-bonds and the rest to be applied to next year's taxes.

It turned out I had made a small error and my overpayment wasn't quite as big as I had thought. The IRS honored my request to put $X towards next year's taxes, discovered there wasn't enough for $5,000 worth of I-bonds, and so sent me a check for some amount less than $5,000. No I-bonds.

So this year I'm asking for the remaining overpayment to be sent to me by check rather than applying it to next year.
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Re: New I-bond rate: 3.54%

Post by jhogue » Wed May 05, 2021 2:35 pm

barrett wrote:
Wed May 05, 2021 1:08 pm
jhogue,

Quick question...

Aren't you retired? If so, how are you pulling off the tax refund paper I-Bond deal each year? I think you've written that you overpay your tax. But that must be by thousands of dollars, right?
I am retired. I do a draft of my taxes at the end of January. I then compute how much I need to overpay to get a tax refund of $5,000. I mail the overpayment in and wait until the IRS deposits that check. It usually takes just a few days to clear. I then record that overpayment in my Turbotax file and submit my completed tax return. The amount overpaid usually is in the thousands of dollars, which I take from my Treasury only money market fund (FDLXX) in my Fidelity brokerage account.

Over time, I am converting a growing portion of my Cash to I-bonds. I-bonds are now about 44% of my Cash. I used to wonder if I would if this might create a problem and have to sell some I-bonds, but so far, so good.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I-bond rate: 3.54%

Post by jhogue » Wed May 05, 2021 2:40 pm

@ Vinny:

Be sure to check that box.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: New I-bond rate: 3.54%

Post by barrett » Thu May 06, 2021 7:03 am

Thanks jhogue, Vinny & Xan for all the details on how to do this and what some of the potential pitfalls are. Much appreciated. It seems like a bit of a song & dance getting these paper I-Bonds, but I really do like the simplicity of paper bonds for my wife's benefit if I should predecease her down the road. Ideally all I pass on to her are:

1) Fidelity brokerage, tax-deferred & Roth accounts
2) US Savings Bonds with her as co-owner or beneficiary
3) A bit of magic gold dust
4) A few thousand bucks in a checking account
5) A few hundred bucks in cash
6) My lucky socks
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