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

Discussion of the Cash portion of the Permanent Portfolio

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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 pugchief » Sat Nov 11, 2017 12:48 pm

Xan wrote:
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.
Well that is certainly not the case for 529 plans. I opened one for my infant granddaughter [ugh, I feel sooo old] and took the state tax deduction myself. She is the beneficiary of the account, so it can be used for her college expenses, tax free, at any school. Including room, board, and certain expenses.
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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 pugchief 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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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by sophie » Tue May 01, 2018 10:10 pm

So the question is: buy this year's I bonds now, or wait until November? If the Fed raises interest rates again that 0.30% fixed rate may go up.

Awesome that interest rates are starting to get high enough that I'm beginning to think about tax-sheltering cash. It's not quite at the point yet where it's worth swapping stocks for cash between taxable and Roth, but it's getting close.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by boglerdude » Tue May 01, 2018 11:14 pm

Is it awesome? Isnt the market supposed to keep real rates the same. Real Interest = Nominal Interest - Inflation
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when to buy I-Bonds in 2019?

Post by ochotona » Wed Aug 01, 2018 9:52 am

For 2019,

What should we be looking for in order to get the maximum interest rate? We have three periods when we can buy where the rates are locked for that period:

1/1/19 - 4/30/19
5/1/19 - 10/31/19
11/1/19 - 12/31/19

I'm kind of at a loss concerning which period to target. Should I wait until after the Fed has done its rate hikes for 2019 (and before the next recession starts and QE starts all over again) in order to get the highest FIXED interest rate?
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Thu Aug 02, 2018 8:47 am

As a longer-term investor in I bonds (ie., over 5 and hopefully up to 30 years), I doubt that it will make much difference when I buy I bonds in 2019. At present, I buy-and-hold I bonds primarily for their guaranteed inflation protection, 30 year tax deferral, and state tax exemption. The I bond yield is important, but secondary in terms of a long term Cash in the PP strategy. To be sure, the I bond yield has consistently beaten yields on 1- 5 year T-bills/notes over the past 5 years. But that has been in the midst of a historically abnormal and artificially induced low interest rate environment.

Going forward, I think that it is a pretty safe bet that I bond rates will rise over the next year. In the past 12 months the 1 year T- bill / I bond spread has narrowed from 71 basis points to just 4 basis points while the I bond fixed rate has risen from 0.1% to 0.3%. Should the FOMC raise the Fed funds rates another two times in 2018 (as Chairman Powell has publicly promised to do) a rise in the I bond fixed rate will almost certainly follow. But, whether these Fed rate hikes definitely continue into 2019—or whether inflation as measured by the CPI-U continues to rise in response-- is not something that can be known for certain in advance.
“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 » Thu Aug 02, 2018 9:14 am

jhogue wrote:
Thu Aug 02, 2018 8:47 am
As a longer-term investor in I bonds (ie., over 5 and hopefully up to 30 years), I doubt that it will make much difference when I buy I bonds in 2019. At present, I buy-and-hold I bonds primarily for their guaranteed inflation protection, 30 year tax deferral, and state tax exemption. The I bond yield is important, but secondary in terms of a long term Cash in the PP strategy. To be sure, the I bond yield has consistently beaten yields on 1- 5 year T-bills/notes over the past 5 years. But that has been in the midst of a historically abnormal and artificially induced low interest rate environment.

Going forward, I think that it is a pretty safe bet that I bond rates will rise over the next year. In the past 12 months the 1 year T- bill / I bond spread has narrowed from 71 basis points to just 4 basis points while the I bond fixed rate has risen from 0.1% to 0.3%. Should the FOMC raise the Fed funds rates another two times in 2018 (as Chairman Powell has publicly promised to do) a rise in the I bond fixed rate will almost certainly follow. But, whether these Fed rate hikes definitely continue into 2019—or whether inflation as measured by the CPI-U continues to rise in response-- is not something that can be known for certain in advance.
JHOGUE, posing the question in another way... I guess if deflation and QE every seem to loom again, then maybe don't pull the trigger on buying more I-Bonds? Maybe spend that increment of dough on 10-30 year US Treasuries?
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Thu Aug 02, 2018 9:57 am

In case of a return to deflation, LTTs and EE bonds will outperform STTs and I bonds. It’s the barbell effect. You won’t have to buy more long bonds; they will rise in price.

However, unlike TIPS, which can (and have) gone into negative yield, I bonds are guaranteed by the US Treasury to not to go below 0% in yield. Yet another reason to hang onto your I 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 11/1/17 - 4/30/18

Post by ochotona » Fri Aug 10, 2018 8:20 pm

Here's an informative I-Bonds and TIPS website

https://tipswatch.com/tracking-inflation-and-i-bonds/
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Fri Aug 24, 2018 10:51 am

Tipswatch is a great website for tracking the inflation rate of the CPI-U and possible moves in I bond interest rates.

That said, I am not sure why the author also promotes the purchase of TIPS. I find TIPS unsuitable for the HBPP, both because they can produce a negative yield in a deflationary economy, and because they lack the automatic 30 year tax deferral that I find so very attractive in I 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 11/1/17 - 4/30/18

Post by ochotona » Mon Oct 15, 2018 8:09 am

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