New I Bond Rate 11/1/17 - 4/30/18

Discussion of the Cash portion of the Permanent Portfolio

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Xan
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by Xan » Mon Nov 06, 2017 10:04 pm

No worries, I'm not the least tempted on TIPS!

My tentative thinking is to put a bunch of my PP "deep cash" into I bonds. I believe this to be better than putting money into a 529 because of its flexibility. If we're doing well enough to pay for college when the time comes, then we have some tax advantages. If not, then it can still be our retirement money. It also fits in to our investment scheme, which a 529 plan wouldn't. With a 529 I would need to have a PP for us, and then the 529 investing in what they offer me to invest in and paying whatever fees. Using savings bonds, the "college savings" are nothing other than earmarked deep cash in the PP which is (for cash) paying a great return.

Disadvantages:
* The savings bond income limit on the tax-free-ness for educational spending.
* 529 can be used tax-free on things like room & board which savings bonds can't.

I'm also tossing around the idea of putting at least some of the bonds in the kids' names. Of course that pretty much means it has to be used for education. And it means that when they turn 18 they could snort the whole thing up their noses or something... But do I have to tell them it exists?
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by sophie » Tue Nov 07, 2017 6:45 am

Have any of you been following the Bogleheads forum discussion of Treasury Direct's security?

It appears they've done away with the medallion signature requirement to link a new bank account. I tested it and yes, it's now very easy to do online and there is no verification whatsoever, not even the "deposit $0.01 and confirm amount" type.

This is all the more concerning because Treasury Direct's stated policy is that if the account or site is hacked, you are responsible for all losses. In contrast, the major brokerages can be relied on to make you whole in case of a security breach. I have this same concern about Perth Mint, which fortunately still makes it very difficult to switch bank accounts and also limits to one account at a time.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by barrett » Tue Nov 07, 2017 7:00 am

Xan wrote:I'm also tossing around the idea of putting at least some of the bonds in the kids' names. Of course that pretty much means it has to be used for education. And it means that when they turn 18 they could snort the whole thing up their noses or something... But do I have to tell them it exists?
One thing to consider is that if you are trying to maximize financial aid for your kids is that the FAFSA and the school FAOs (financial aid officers) count assets in the kids' name more heavily than assets in the parents' name. It's a terrible system for a kid who works a lot in high school because after a certain point (I think around $6,000 or $7,000 of income), much of what a kid earns gets snagged by the school they attend (or, more precisely, it raises the EFC or expected family contribution).

We ended up having about half of what was needed for our daughter's undergraduate studies in 529s. We started those in 2007 so for the most part we had a favorable stock market driving returns in those accounts. Our only choice on the 529s was how aggressive to be with stocks versus bonds, a percentage that automatically skews more toward bonds as the kid approaches college age.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Wed Nov 08, 2017 1:17 pm

Xan wrote:No worries, I'm not the least tempted on TIPS!

My tentative thinking is to put a bunch of my PP "deep cash" into I bonds. I believe this to be better than putting money into a 529 because of its flexibility. If we're doing well enough to pay for college when the time comes, then we have some tax advantages. If not, then it can still be our retirement money. It also fits in to our investment scheme, which a 529 plan wouldn't. With a 529 I would need to have a PP for us, and then the 529 investing in what they offer me to invest in and paying whatever fees. Using savings bonds, the "college savings" are nothing other than earmarked deep cash in the PP which is (for cash) paying a great return.

Disadvantages:
* The savings bond income limit on the tax-free-ness for educational spending.
* 529 can be used tax-free on things like room & board which savings bonds can't.

I'm also tossing around the idea of putting at least some of the bonds in the kids' names. Of course that pretty much means it has to be used for education. And it means that when they turn 18 they could snort the whole thing up their noses or something... But do I have to tell them it exists?
Xan,

It is impossible to generalize about investment decisions once you throw the intricacies of FAFSA, income limitations, and taxes into the mix. But let me focus my thoughts on some points that you might find helpful:

-I like your concept of “earmarking” I bonds in your PP Cash for higher education because it is simple and flexible, but it still stays within Uncle Harry’s established bounds of safety, stability, and liquidity. You do not want to be tied to the complexities of additional requirements or potential penalties involved with establishing a 529 account.

-Over 10 or 20 years, an I bond ladder would have no principal risk and far-less volatility compared to a 529 filled with stock mutual funds—especially with the market indices now at an all time high.

-You can buy additional I bonds in your kids’ names and pay their taxes on an annual basis, if that makes tax sense for you and you have already reached your maximum annual purchase limit. Once you gift them, however, those funds become theirs and they will have authority over them when they turn 18. See treasurydirect.com for details about minor accounts.

-Don’t forget that fully funding your retirement comes first. As the saying goes, you can borrow to fund college, but you can’t borrow to fund retirement. The cool thing about I bonds is that buying them means you don’t have to choose one over the other; they can do both.
“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 11/1/17 - 4/30/18

Post by barrett » Wed Nov 08, 2017 1:52 pm

Not trying to hijack the thread away from I-Bonds but I would again caution against having a lot of assets in your kids' names for college financial aid purposes. See the following link:

https://www.edvisors.com/fafsa/secrets/ ... nt-assets/

From my understanding, having assets in your kids' names raises your EFC (expected family contribution) when filling out the FAFSA.

A good book on the subject is Paying for College Without Going Broke. The 2018 edition should be out soon.

Of course if your kids are applying to schools that require you to fill out the CSS form, the rules are different in that those schools will be looking at a greater range of parent assets.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by ochotona » Wed Nov 08, 2017 7:23 pm

Just got my I-bonds for 2017. Nice feeling.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Wed Nov 08, 2017 10:24 pm

barrett wrote:Not trying to hijack the thread away from I-Bonds but I would again caution against having a lot of assets in your kids' names for college financial aid purposes. See the following link:

https://www.edvisors.com/fafsa/secrets/ ... nt-assets/

From my understanding, having assets in your kids' names raises your EFC (expected family contribution) when filling out the FAFSA.

A good book on the subject is Paying for College Without Going Broke. The 2018 edition should be out soon.

Of course if your kids are applying to schools that require you to fill out the CSS form, the rules are different in that those schools will be looking at a greater range of parent assets.
Thanks for the citations for sources on college financial aid. I absolutely agree with you that putting assets in kids’ names raises your EFC when it comes time to submit FAFSA documents. And that can be a problem.

To clarify my previous post to Xan, you CAN title I bonds in your child’s name, but I would ONLY do it AFTER I had filled every other tax deferred retirement account first AND had already bought the full annual allotment of I bonds. You will save some federal taxes on the child’s I bonds taxed at their lower marginal tax rate if you choose to pay taxes on an annual basis, but you will have to balance that against the increase in your EFC, as indicated in the sources barrett cites.

Xan did not give the age of his children, but an alternate way to increase his savings bond holdings might be to consider buying an additional allotment of EE bonds, which double in value in 20 years, but have the same federal, state, and local tax treatment as I bonds. EE bonds currently carry an attractive guaranteed 3.53% yield if held for 20 years, but should be treated as “deeper cash” and must be actively managed, as I have written about in another thread.

In fact, we paid for our daughter’s college using a combination of older generation EE bonds, cash flow, and a smaller chunk of federal backed loans that we paid off after graduation but before any interest accrued. We did not put any assets in her name, nor did I establish a 529. I still regard 529 plans as a needless financial complication, in which parents get penalized for withdrawing funds not spent on college, often get poor or limited choices in stock and bond funds, and can get stuck with high fees and fund expense ratios that drag down investment returns. In addition to all those problems, stock market returns are likely to be lower over the next ten years than they were over the last ten years. Do you want to invest your kids’ college money, or do you feel like speculating?

There are certainly many different successful strategies to pay for college. A ladder of savings bonds inside of a Permanent Portfolio has the virtues of simplicity and the powerful effect of returns guaranteed by the U.S. Treasury.
“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 11/1/17 - 4/30/18

Post by jhogue » Wed Nov 08, 2017 11:07 pm

ochotona wrote:Just got my I-bonds for 2017. Nice feeling.
Current I bond rate = 2.58 %

Current 5 year CD = 2.40%

Current 20 year Treasury bond = 2.54%

Have some cake and eat it too!
“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 11/1/17 - 4/30/18

Post by whatchamacallit » Thu Nov 09, 2017 8:18 am

I am currently also only doing I bonds and EE bonds for possible college savings but there is another advantage my state has for 529 plans.

You can deduct up to $4000 each year per married couple for your state income which I think could come out to about ~6% instant gain for that year you use deduction.

Not a ton of money but something I might be considering the last few years before college starts if it looks imminent.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Thu Nov 09, 2017 12:02 pm

Which state plan?
“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 11/1/17 - 4/30/18

Post by whatchamacallit » Thu Nov 09, 2017 12:43 pm

http://www.savingforcollege.com/compare ... _questions

Looks like many states have deduction.

Edit: Trying to fix link.
Last edited by whatchamacallit on Thu Nov 09, 2017 3:18 pm, edited 1 time in total.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Thu Nov 09, 2017 3:07 pm

I bonds and EE bonds have always been free from state and local income taxes. There is no cap.
“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 11/1/17 - 4/30/18

Post by whatchamacallit » Thu Nov 09, 2017 3:28 pm

jhogue wrote:I bonds and EE bonds have always been free from state and local income taxes. There is no cap.

Sorry to be getting a little off topic of the I bonds but the 529 Plan Income Tax deduction is tax saved on the contribution amount. The I bonds and EE bonds do not give you a tax deduction for buying them. They both give you tax free gains as long as you use it all for education.

It depends on the state but I see you could really get some nice tax deductions if you know the money will be used for college. I can't currently know that myself so I will stick with I bonds and EE bonds for now.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by PP67 » Fri Nov 10, 2017 3:30 pm

"If you have the bond in your own name and not your kid's, then if you spend the money on their higher education, the interest is tax-free. (There are income limitations on this, unfortunately, and of course the act of cashing out the bonds makes it harder to stay under the limit.)"

Would this tax-free status apply if you were to spend it on your grandkid's education?
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by Xan » Fri Nov 10, 2017 3:45 pm

PP67 wrote:"If you have the bond in your own name and not your kid's, then if you spend the money on their higher education, the interest is tax-free. (There are income limitations on this, unfortunately, and of course the act of cashing out the bonds makes it harder to stay under the limit.)"

Would this tax-free status apply if you were to spend it on your grandkid's education?
https://www.treasurydirect.gov/indiv/pl ... cation.htm

My reading is that it has to be for a dependent for whom you claim a tax exemption.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Sat Nov 11, 2017 1:58 pm

Hmmm…

Here might be one way to maximize the advantages of I bonds AND 529 plans while minimizing their respective disadvantages:

Buy annual allotments of I bonds in your name from now until the child goes to college. In the same year that the child actually begins college, open a 529 plan, then immediately sell I bonds, take the state tax deduction, and roll the proceeds into the 529 plan. Repeat each year until the child graduates -- or you run out of I bonds.

-You keep control of your invested I bonds in your name as they grow
-You preserve the tax free status of your I bonds
-You don’t fund the 529 until your child is ready to use it
-You get the state tax deduction (to which MangoMan referred- Yay Grandpa Pug!)
-You don’t overfund the 529 while the child is in college
-You keep any unneeded I bonds in a tax deferred status for your own future needs

I think this method would work, but I am neither a tax attorney nor a financial aid officer. I have always believed in the simplicity of do-it-yourself investment—like most members of this forum—but taxes and financial aid, as I suggested earlier in this thread, are both complicated and individualized. On top of everything else, don’t forget that current events demonstrate that predicting what the tax code will be in 20 years is as difficult as predicting what stock market returns will be in 20 years.
“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 11/1/17 - 4/30/18

Post by ochotona » Sun Nov 26, 2017 4:59 pm

2017 Form 8888 still has paper I-bonds choice. I think I'm going to drop an extra $5000 to the IRS by 1/16/18 in order to assured to be able to get my full share.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Tue Nov 28, 2017 2:04 pm

Yup.

There have been rumors for years that the Treasury Department is going to drop paper I bonds through IRS tax returns. I think political pressure from Congress has prevented abandoning a popular program. For details, see:

GAO Report on the Future of Paper US savings bonds:
http://www.gao.gov/products/GAO-15-563



Also note that you can file an extra payment to fund your I bonds purchase with a regular tax filing extension. It is simple to do with Turbotax, which I have used for the past 3 years.
“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 11/1/17 - 4/30/18

Post by ochotona » Sat Feb 10, 2018 9:14 pm

I'm going to convert my paper I-bonds to converted electronic I-bonds on TreasuryDirect.gov. As long as I record the electronic serial numbers and issue dates, loss is not an issue.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Sun Feb 11, 2018 9:57 am

I keep electronic I bonds in a Treasury Direct account as well as paper I bonds in a safe deposit box at my local bank. I like both forms for different reasons:

I bonds held at Treasury Direct can be redeemed and the cash transferred to my bank account as a computer transaction 24/7/365, just like securities held in a brokerage account at Fidelity or Vanguard.

But I also like holding some of my I bonds in paper form as part of my “Deep Cash.” Just like physical gold or greenback dollars, tangible U.S. Treasury Bonds give me a nice warm feeling of security when the stock market is having a tumultuous stretch.
“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 11/1/17 - 4/30/18

Post by ochotona » Sun Feb 11, 2018 11:56 am

jhogue wrote:But I also like holding some of my I bonds in paper form as part of my “Deep Cash.” Just like physical gold or greenback dollars, tangible U.S. Treasury Bonds give me a nice warm feeling of security when the stock market is having a tumultuous stretch.
I just don't want to end up a confused senior citizen with potentially 100+ paper bonds, or maybe my widow has to figure out what out what to do with them.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Sun Feb 11, 2018 12:29 pm

Ochotona, I think that your concerns are real, but I also think they apply to our entire investment portfolios, not just paper U.S. Treasury bonds.

My father-in-law invested in EE bonds, mostly intended for his children and grandchildren, for almost half a century. He kept them all in his local bank safe deposit box before he died about ten years ago. He listed their numbers, location and purpose in his will, and also did an inventory with his adult children before he died about ten years ago.

I don’t think my wife will have a problem cashing in our I-bonds in the case of my premature demise. She also knows I keep greenbacks and physical gold there too.
“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 11/1/17 - 4/30/18

Post by ochotona » Sat Feb 24, 2018 9:26 am

My paper I-bonds got converted to electronic and it was super fast. I mailed the bonds on Monday, by end of week got a confirmation from US Treasury in Minnesota they'd been received. Converted and posted a week later. Wow.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by ochotona » Tue May 01, 2018 1:17 pm

I Bonds purchased from May 1 to October 31 will carry a composite rate of 2.52% annualized.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by barrett » Tue May 01, 2018 4:51 pm

ochotona wrote:I Bonds purchased from May 1 to October 31 will carry a composite rate of 2.52% annualized.
Yes, and the fixed rate is 0.30%. That's the highest since it was also 0.30% in November 2009. The variable inflation-indexed rate for this 6-month period is 2.22%.

And one-year treasuries are now at 2.26%, so even though the PP is not doing much at the moment, at least there are some better alternatives for cash than what we've had for the past 8.5 years. Good to see the one-year treasury rate equal to inflation.
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