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 pugchief » Thu Nov 09, 2017 12:47 pm

whatchamacallit wrote: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.
jhogue wrote:Which state plan?
IL has a similar deal. You can deduct up to $10,000 of 529 contributions [$20,000 if married filing jointly] on your state income tax. That equates to an instant 4.75% instant gain on the investment.

edit: I see that while I was typing, whatchamacallit posted a whole list.
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