Page 3 of 4

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

Posted: Thu Nov 09, 2017 3:07 pm
by jhogue
I bonds and EE bonds have always been free from state and local income taxes. There is no cap.

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

Posted: Thu Nov 09, 2017 3:28 pm
by whatchamacallit
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.

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

Posted: Fri Nov 10, 2017 3:30 pm
by PP67
"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?

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

Posted: Fri Nov 10, 2017 3:45 pm
by Xan
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.

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

Posted: Sat Nov 11, 2017 12:48 pm
by pugchief
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.

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

Posted: Sat Nov 11, 2017 1:58 pm
by jhogue
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.

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

Posted: Sun Nov 26, 2017 4:59 pm
by ochotona
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.

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

Posted: Tue Nov 28, 2017 2:04 pm
by jhogue
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.

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

Posted: Sat Feb 10, 2018 9:14 pm
by ochotona
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.

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

Posted: Sun Feb 11, 2018 9:57 am
by jhogue
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.

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

Posted: Sun Feb 11, 2018 11:56 am
by ochotona
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.

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

Posted: Sun Feb 11, 2018 12:29 pm
by jhogue
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.