- whodidntante
- Posts: 13356
- Joined: Thu Jan 21, 2016 10:11 pm
- Location: outside the echo chamber
Re: EE Bonds or I Bonds this year?
Postby whodidntante »
Since you know rates are going down, EE bonds and I bonds would be a tremendous waste of capital. Instead, buy Treasury futures.
Last edited by whodidntante on Thu Jan 04, 2024 9:59 pm, edited 1 time in total.
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Re: EE Bonds or I Bonds this year?
In that case, I will still recommend I bonds over EE bonds. It will provide some inflation protection in case inflation gets high again. The fixed rate of 1.3% is good for an I bond.
In my opinion, EE bonds are only good if you intend to hold them for 20 years so you get the doubling effect, which amounts to an annual interest rate of 3.54%.
If you are going to hold for less than 20 years, I would pick the I bond.
If you are going to hold for 20 years, it's less certain, but with the I bond fixed rate currently at 1.3%, I'll still say the I bond over the EE bond.
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Re: EE Bonds or I Bonds this year?
henry wrote: ↑Thu Jan 04, 2024 9:57 pm
In that case, I will still recommend I bonds over EE bonds. It will provide some inflation protection in case inflation gets high again. The fixed rate of 1.3% is good for an I bond.
In my opinion, EE bonds are only good if you intend to hold them for 20 years so you get the doubling effect, which amounts to an annual interest rate of 3.54%.
If you are going to hold for less than 20 years, I would pick the I bond.
If you are going to hold for 20 years, it's less certain, but with the I bond fixed rate currently at 1.3%, I'll still say the I bond over the EE bond.
Thank you for your considered response! I expect to hold it for a long time. I will go with the I bond this year.
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Re: EE Bonds or I Bonds this year?
Another tip would be, if you are married or trust someone, you can buy $10k as a gift for future years purchases, to be delivered to your Treasury Direct Account in future years.
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Re: EE Bonds or I Bonds this year?
Your tax bracket is a factor too.
These are tax deferred (unless you go out of your way to report interest each year without a 1099-INT).
That is a good thing if you are in a very high tax bracket and expect to retire years from now.
That is a bad thing if you are already retired and already in a modest tax bracket, where tax rates are likely to go up in the future
(due to 2017 tax cut sunset and possible future changes in filing status).
Just something to consider.
I bought both E and I bonds when I was starting my peak earning years, selling them now that I am retired.
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- Agitated_Analyst
- Posts: 42
- Joined: Thu Mar 31, 2022 8:10 am
Re: EE Bonds or I Bonds this year?
Postby Agitated_Analyst »
In my opinion, I-bonds are by far the superior investment. For that matter, I think for someone in the accumulation phase of investing, I-bonds are superior to most other types of fixed income. They are tax-deferred. They have no interest rate risk. They protect against inflation AND deflation.
EE bonds have to be held for 20 years to make sense and if there is any bout of inflation in that time, their purchasing power will be eroded away.
Equities 85% (35% VTI | 35% VEA | 15% DFSV | 15% DISV) | Fixed Income 15% (I-bonds | T-Bills) | "Inside every cynical person is a disappointed idealist" - George Carlin
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Re: EE Bonds or I Bonds this year?
I plan on buying our allotment of both this year, like every year. Except I might also gift box another $10k per spouse of I bonds for the fixed rate.
Our collection of I bonds did exactly what they're supposed to do when inflation went wild. I was happy to have them.
Ee bonds will do exactly what they're supposed to in twenty years. Neither cost me anything in taxes in the meantime, which factors substantially into the benefit for me.
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Re: EE Bonds or I Bonds this year?
Let me look into that. I created an account for my son and have been purchasing 10K of Ibonds for him. My husband has his own account and has been purchasing I bonds there.
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Re: EE Bonds or I Bonds this year?
Inflation and interest rates going down are not a given. Just because Powell suggested it and the news media were all over it , doesn't mean it will happen. There was a news article just this last week reporting that European inflation just flared back up, could easily happen here. Bill Bernstein's recommendation is that out of the four ( deflation, inflation, confiscation and ?) inflation is the only one worth trying to mitigate because over the long term it is pervasive and almost a given. That's why I do I-bonds and TIPS. Just my 2 cents.
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Re: EE Bonds or I Bonds this year?
beyou wrote: ↑Fri Jan 05, 2024 12:51 pmYour tax bracket is a factor too.
These are tax deferred (unless you go out of your way to report interest each year without a 1099-INT).
That is a good thing if you are in a very high tax bracket and expect to retire years from now.
That is a bad thing if you are already retired and already in a modest tax bracket, where tax rates are likely to go up in the future
(due to 2017 tax cut sunset and possible future changes in filing status).Just something to consider.
I bought both E and I bonds when I was starting my peak earning years, selling them now that I am retired.
Thank you. Just realized about the 2017 tax cut sunset from your post. We are in a high tax bracket currently and have about 20 years to retirement. I think it is a good idea to purchase both I and EE bonds. It just did not occur to me earlier.
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- Agitated_Analyst
- Posts: 42
- Joined: Thu Mar 31, 2022 8:10 am
Re: EE Bonds or I Bonds this year?
Postby Agitated_Analyst »
nyejos11 wrote: ↑Sat Jan 06, 2024 6:35 amInflation and interest rates going down are not a given. Just because Powell suggested it and the news media were all over it , doesn't mean it will happen. There was a news article just this last week reporting that European inflation just flared back up, could easily happen here. Bill Bernstein's recommendation is that out of the four ( deflation, inflation, confiscation and ?) inflation is the only one worth trying to mitigate because over the long term it is pervasive and almost a given. That's why I do I-bonds and TIPS. Just my 2 cents.
I couldn't agree more. This is well said.
Equities 85% (35% VTI | 35% VEA | 15% DFSV | 15% DISV) | Fixed Income 15% (I-bonds | T-Bills) | "Inside every cynical person is a disappointed idealist" - George Carlin
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Re: EE Bonds or I Bonds this year?
nyejos11 wrote: ↑Sat Jan 06, 2024 6:35 amInflation and interest rates going down are not a given. Just because Powell suggested it and the news media were all over it , doesn't mean it will happen. There was a news article just this last week reporting that European inflation just flared back up, could easily happen here. Bill Bernstein's recommendation is that out of the four ( deflation, inflation, confiscation and ?) inflation is the only one worth trying to mitigate because over the long term it is pervasive and almost a given. That's why I do I-bonds and TIPS. Just my 2 cents.
Agreed that the Fed inflation target is no sure thing. That said, living through a deflationary period, most would not want to experience that again (like the GFC 2008-2009). Having nominal treasuries in addition would be some help to reduce the effects of deflation. Savings bonds wont lose value but they wont rise during deflation as a 10 or 30 year treasury bond would. Personally I am spreading out the fixed income part of my portfolio between inflation and nominal bonds, rebalancing as necessary. i bonds and tips for half, treasuries/high quality munis for the other half. One could buy e and i savings bonds, and think of the e bonds as a 20 Year 3.5% fixed rate bond, though it wont rise in value during a crisis like a 10-30 year treasury. But at least split e and i bonds if you do not buy other fixed income, since the OP has a long time horizon. For those well into retirement e bonds make little sense, since the rate is 2.7 for under 20 year horizon. Not terrible but you can get over 4% on US tsy bonds now and more deflation protection.
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Re: EE Bonds or I Bonds this year?
Very true. But Investopedia reports that in the last 60 years, deflation has only happened in 2009 and 2015. So to prepare for it in my book isn’t really worth it. Inflation is much much more pervasive and can easily be prepared for.
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- Alto Astral
- Posts: 979
- Joined: Thu Oct 08, 2009 10:47 am
Re: EE Bonds or I Bonds this year?
Postby Alto Astral »
I sold $30K worth of EE bonds and purchased $20K worth of I Bonds today. I've been purchasing I Bonds for over 5 years now. Right now I am replacing most of the 0% fixed rate ones 17 week Treasuries.
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Re: EE Bonds or I Bonds this year?
Both for me, but I have a bit of an oddball plan. It might not be mathematically ideal, but I am stupidly risk averse. I am doing plenty into 401k/Roth/Taxable in target date and index funds respectively, and CD/HYSA for short term holdings like saving up for the next year's bond purchase, but want to increase bonds as much as I can after that.
Starting at age 42, bought 10K in I Bonds and 10k in EE Bonds. Did it again the next year and the next. At the end of this month, I will be doing it again, and so on until I hit 51 for 10 years of each. I plan to retire later that year or early the one after, which is when:
At age 52-61, I will cash my oldest (10 year old) I Bond each year as my baseline fixed income before drawing from taxable. This will overlap the transition from taxable (52-59 years expenses) to 401k withdrawals (60-70 years expenses).
At age 62-71, when they 'mature' (double at 20 years), I will cash in my oldest EE Bond each year to do the same as above. This will overlap the transition from 401k withdrawals to Social Security at 70.
They will be all gone by the age of 72, when I will start pulling from Roth (RMD hit about then anwyway) to supplement SS.
The math works well enough for me anyway! It started out as an emergency fund thing but I am pretty happy with how it has evolved.
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Re: EE Bonds or I Bonds this year?
I just read in more detail about this and now I understand how the future gifting works. Thank you.
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Re: EE Bonds or I Bonds this year?
re the phrase: "to be delivered to your Treasury account". After purchasing a gift I Bond, I believe that the correct action is better described as that one would "deliver" the I Bond at a later date to the target spouse/individual; i.e., not being delivered to "your" account.To take advantage of the 1.3% base that expires in a few months, my plan is that each of us would purchase a $10,000 I Bond; and then each of us would purchase $10,000 as a gift I Bond for each other in February 2024. In January 2025, each of us would then 'deliver' the gifted I Bond to each other.
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Re: EE Bonds or I Bonds this year?
Deontic wrote: ↑Sun Jan 07, 2024 11:49 amre the phrase: "to be delivered to your Treasury account". After purchasing a gift I Bond, I believe that the correct action is better described as that one would "deliver" the I Bond at a later date to the target spouse/individual; i.e., not being delivered to "your" account.To take advantage of the 1.3% base that expires in a few months, my plan is that each of us would purchase a $10,000 I Bond; and then each of us would purchase $10,000 as a gift I Bond for each other in February 2024. In January 2025, each of us would then 'deliver' the gifted I Bond to each other.
I did say you need a trusted partner.... It will be that other trusted partner who would be delivering the I bonds to your TD account
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- carminered2019
- Posts: 1964
- Joined: Fri Jun 21, 2019 7:06 pm
Re: EE Bonds or I Bonds this year?
Postby carminered2019 »
Would you guys recommend to buy more I-bonds in the gift basket with extra money in this environment ?
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Re: EE Bonds or I Bonds this year?
carminered2019 wrote: ↑Sun Jan 07, 2024 3:20 pmWould you guys recommend to buy more I-bonds in the gift basket with extra money in this environment ?
Absolutely!! You will lock up 1.3% fixed rate for 30 years!! As of right now they are also yielding 5.24%, right up there with the money market funds or Treasuries.
I have just about run out of spare cash ($20k in I bonds -- his and hers, $15k in Backdoor Roth IRA -- his and hers) so will have to wait until April to replenish cash and buy again using gift box technique ...
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- carminered2019
- Posts: 1964
- Joined: Fri Jun 21, 2019 7:06 pm
Re: EE Bonds or I Bonds this year?
Postby carminered2019 »
lakpr wrote: ↑Sun Jan 07, 2024 7:44 pm
carminered2019 wrote: ↑Sun Jan 07, 2024 3:20 pmWould you guys recommend to buy more I-bonds in the gift basket with extra money in this environment ?
Absolutely!! You will lock up 1.3% fixed rate for 30 years!! As of right now they are also yielding 5.24%, right up there with the money market funds or Treasuries.
I have just about run out of spare cash ($20k in I bonds -- his and hers, $15k in Backdoor Roth IRA -- his and hers) so will have to wait until April to replenish cash and buy again using gift box technique ...
Ok thanks, I will buy 10k x 5 for me and same for my wife tomorrow in our giftbox.
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Re: EE Bonds or I Bonds this year?
lakpr wrote: ↑Sun Jan 07, 2024 7:44 pm
carminered2019 wrote: ↑Sun Jan 07, 2024 3:20 pmWould you guys recommend to buy more I-bonds in the gift basket with extra money in this environment ?
Absolutely!! You will lock up 1.3% fixed rate for 30 years!! As of right now they are also yielding 5.24%, right up there with the money market funds or Treasuries.
I have just about run out of spare cash ($20k in I bonds -- his and hers, $15k in Backdoor Roth IRA -- his and hers) so will have to wait until April to replenish cash and buy again using gift box technique ...
Thanks for the recommendation. What is the $15K in Backdoor Roth IRA? Is this through the Treasury Direct account? How does that work?
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Re: EE Bonds or I Bonds this year?
honigvod wrote: ↑Sat Jan 06, 2024 8:35 pmBoth for me, but I have a bit of an oddball plan. It might not be mathematically ideal, but I am stupidly risk averse. I am doing plenty into 401k/Roth/Taxable in target date and index funds respectively, and CD/HYSA for short term holdings like saving up for the next year's bond purchase, but want to increase bonds as much as I can after that.
Starting at age 42, bought 10K in I Bonds and 10k in EE Bonds. Did it again the next year and the next. At the end of this month, I will be doing it again, and so on until I hit 51 for 10 years of each. I plan to retire later that year or early the one after, which is when:
At age 52-61, I will cash my oldest (10 year old) I Bond each year as my baseline fixed income before drawing from taxable. This will overlap the transition from taxable (52-59 years expenses) to 401k withdrawals (60-70 years expenses).
At age 62-71, when they 'mature' (double at 20 years), I will cash in my oldest EE Bond each year to do the same as above. This will overlap the transition from 401k withdrawals to Social Security at 70.
They will be all gone by the age of 72, when I will start pulling from Roth (RMD hit about then anwyway) to supplement SS.
The math works well enough for me anyway! It started out as an emergency fund thing but I am pretty happy with how it has evolved.
This is a great plan. I was just wondering if the total I-bond amount each year is enough for your living expenses for a whole year?
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Re: EE Bonds or I Bonds this year?
consinv wrote: ↑Mon Jan 08, 2024 10:51 amThanks for the recommendation. What is the $15K in Backdoor Roth IRA? Is this through the Treasury Direct account? How does that work?
Backdoor IRA is when you make a non deductible contribution to a Traditional IRA, then turn around and immediately convert it to Roth IRA.
There are a few prerequisites to meet before you take this step. Firstly, you shouldn't have any balance in any Traditional IRA at any custodian, as of December 31 if each year. That's indirectly saying do not ever roll your 401k to a Rollover IRA. If you have any existing Traditional IRA, or Rollover IRA, roll those amounts first to your workplace retirement plan -- 401k or 403b.
The usual limits apply. In my case I am over 50, so eligible to contribute $8000. My wife is younger than 50, so $7000. Total of $15,000
We do this annually within the first week of January
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Re: EE Bonds or I Bonds this year?
lakpr wrote: ↑Mon Jan 08, 2024 10:58 am
consinv wrote: ↑Mon Jan 08, 2024 10:51 amThanks for the recommendation. What is the $15K in Backdoor Roth IRA? Is this through the Treasury Direct account? How does that work?
Backdoor IRA is when you make a non deductible contribution to a Traditional IRA, then turn around and immediately convert it to Roth IRA.
There are a few prerequisites to meet before you take this step. Firstly, you shouldn't have any balance in any Traditional IRA at any custodian, as of December 31 if each year. That's indirectly saying do not ever roll your 401k to a Rollover IRA. If you have any existing Traditional IRA, or Rollover IRA, roll those amounts first to your workplace retirement plan -- 401k or 403b.
The usual limits apply. In my case I am over 50, so eligible to contribute $8000. My wife is younger than 50, so $7000. Total of $15,000
We do this annually within the first week of January
Oh ok. I had taken a break from work and had rolled over the 401(k) into a Vanguard IRA since my ex-employer was moving from Vanguard to another brokerage firm. I currently own that account. Can I move this to my current employer's 401(k)? I would really hate to move it from Vanguard to Fidelity though but would do it if it is financially beneficial.
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Re: EE Bonds or I Bonds this year?
consinv wrote: ↑Mon Jan 08, 2024 11:37 amOh ok. I had taken a break from work and had rolled over the 401(k) into a Vanguard IRA since my ex-employer was moving from Vanguard to another brokerage firm. I currently own that account. Can I move this to my current employer's 401(k)? I would really hate to move it from Vanguard to Fidelity though but would do it if it is financially beneficial.
Yes, and in my opinion you should. This would give you the super-strong ERISA protections with the 401(k) money, as well as clear the decks for Backdoor Roth. But before you move the money, please check what the expense ratios within your 401(k) plan are. If they are good or better than IRA, it makes sense to move.
Even if the expense ratios are slightly higher, it might still make sense to move the IRA money into the plan; I estimated that the approximate value of being able to do Backdoor Roth every year is about $1,000 per year. You may want to look at this past post of mine to see how I arrived at those calculations, and if you agree with the premises (or check if those assumptions are applicable to you).
If someone is offering you $1000 every year if only you would take a onetime effort that may take a couple of weeks, would you take it?
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Re: EE Bonds or I Bonds this year?
lakpr wrote: ↑Mon Jan 08, 2024 1:00 pm
consinv wrote: ↑Mon Jan 08, 2024 11:37 amOh ok. I had taken a break from work and had rolled over the 401(k) into a Vanguard IRA since my ex-employer was moving from Vanguard to another brokerage firm. I currently own that account. Can I move this to my current employer's 401(k)? I would really hate to move it from Vanguard to Fidelity though but would do it if it is financially beneficial.
Yes, and in my opinion you should. This would give you the super-strong ERISA protections with the 401(k) money, as well as clear the decks for Backdoor Roth. But before you move the money, please check what the expense ratios within your 401(k) plan are. If they are good or better than IRA, it makes sense to move.
Even if the expense ratios are slightly higher, it might still make sense to move the IRA money into the plan; I estimated that the approximate value of being able to do Backdoor Roth every year is about $1,000 per year. You may want to look at this past post of mine to see how I arrived at those calculations, and if you agree with the premises (or check if those assumptions are applicable to you).
If someone is offering you $1000 every year if only you would take a onetime effort that may take a couple of weeks, would you take it?
Thank you for the details. I will definitely look into it and yes, I would put in the effort for $1000 every year.
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Re: EE Bonds or I Bonds this year?
honigvod wrote: ↑Sat Jan 06, 2024 8:35 pmBoth for me, but I have a bit of an oddball plan. It might not be mathematically ideal, but I am stupidly risk averse. I am doing plenty into 401k/Roth/Taxable in target date and index funds respectively, and CD/HYSA for short term holdings like saving up for the next year's bond purchase, but want to increase bonds as much as I can after that.
Starting at age 42, bought 10K in I Bonds and 10k in EE Bonds. Did it again the next year and the next. At the end of this month, I will be doing it again, and so on until I hit 51 for 10 years of each. I plan to retire later that year or early the one after, which is when:
At age 52-61, I will cash my oldest (10 year old) I Bond each year as my baseline fixed income before drawing from taxable. This will overlap the transition from taxable (52-59 years expenses) to 401k withdrawals (60-70 years expenses).
At age 62-71, when they 'mature' (double at 20 years), I will cash in my oldest EE Bond each year to do the same as above. This will overlap the transition from 401k withdrawals to Social Security at 70.
They will be all gone by the age of 72, when I will start pulling from Roth (RMD hit about then anwyway) to supplement SS.
The math works well enough for me anyway! It started out as an emergency fund thing but I am pretty happy with how it has evolved.
I started doing the same as you with EE bonds at the same age then decided to just cash them in and stop that approach in favor of additional i bonds in two trust accounts and with tax refund dollars after a few years. Sometimes I regret ending the EE bonds but it probably wouldn't amount to much significance as I wasn't buying those in trust accounts. I rationalized this change by noting that I bonds have higher downside risk protection if high inflation and more flexibility to take out prior to the 20yr doubling (they do double duty as emergency fund for some people). If I want more space I can just start another trust account (annoying, but possible). The only cons are:
- Finding a good year to take the interest rate hit to trade out some of my 0 percent fixed bonds that I don't need.
- Not having a good gift box partner to avoid needing more trust accounts
- If something happens to me the bonds in those trust accounts (and T Direct overall) are going to be a nightmare, but that is not a priority in my investing decisions at this stage.
That said posts like this make me think about restarting with the EEs as I'm still 20+ years from SS like you - need to tell myself to stay the course
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Re: EE Bonds or I Bonds this year?
consinv wrote: ↑Mon Jan 08, 2024 10:53 amThis is a great plan. I was just wondering if the total I-bond amount each year is enough for your living expenses for a whole year?
Not at all! Again, it is a baseline. I figure I-bonds (and eventual EE-bonds) are close enough to inflation to count as having the same equivalent purchasing power when I cash them out in the future.
Bought I-bond in 2021 (when I was 42) for $10k. Cash I-bond in 2031 (when I am 52) for roughly $14k, which should have similar purchasing power. Then I draw upwards of $40k from my index funds, although probably less (I currently live on about $30k a year total). At 60, I supplement the bond baseline with 401k withdrawals. At 70 it is Social Security. The bonds are just my planned 20 year "I won't starve" fixed income before investments are added to it for other necessities and fun as needed.
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Re: EE Bonds or I Bonds this year?
leland wrote: ↑Mon Jan 08, 2024 6:13 pmI started doing the same as you with EE bonds at the same age then decided to just cash them in and stop that approach in favor of additional i bonds in two trust accounts and with tax refund dollars after a few years. Sometimes I regret ending the EE bonds but it probably wouldn't amount to much significance as I wasn't buying those in trust accounts. I rationalized this change by noting that I bonds have higher downside risk protection if high inflation and more flexibility to take out prior to the 20yr doubling (they do double duty as emergency fund for some people). If I want more space I can just start another trust account (annoying, but possible). The only cons are:
- Finding a good year to take the interest rate hit to trade out some of my 0 percent fixed bonds that I don't need.
- Not having a good gift box partner to avoid needing more trust accounts
- If something happens to me the bonds in those trust accounts (and T Direct overall) are going to be a nightmare, but that is not a priority in my investing decisions at this stage.
That said posts like this make me think about restarting with the EEs as I'm still 20+ years from SS like you - need to tell myself to stay the course
Your approach sounds good as well, but adds another layer of complexity (and annoyance as you said). I am single and will be forever, so never looked into any trust accounts or gifts or anything. It looks like a headache. Heck, I gave up on the idea of tax refund purchases and the like as I am too lazy for that and I currently don't get much of a refund. I know I can pay and make it happen anyway, but not worth it for me.
I figure EE bonds will likely beat or at least meet inflation when they hit the doubling point. I could be wrong, but it is better than stuffing it into a bank savings account that I had before I went this route! And, since I can *only* buy 10k in i-bonds a year (since I don't go refund or trust) and can *only* buy 10k in EE-bonds, it is simpler for me to just max both of them out every spring. It did start as an emergency fund for me a few years ago and I just kept doing it.
I don't want to trade out the lower fixed rate bonds for higher, when I can just get more bonds. Also, anything I cash out would be in the 24% tax rate so no thanks. I might revisit the idea when I decide to stop working if I have spare cash or something part time when my tax bracket will be in the 0-12% ranges.
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Re: EE Bonds or I Bonds this year?
honigvod wrote: ↑Mon Jan 08, 2024 8:10 pmYour approach sounds good as well, but adds another layer of complexity (and annoyance as you said). I am single and will be forever, so never looked into any trust accounts or gifts or anything. It looks like a headache. Heck, I gave up on the idea of tax refund purchases and the like as I am too lazy for that and I currently don't get much of a refund. I know I can pay and make it happen anyway, but not worth it for me.
I figure EE bonds will likely beat or at least meet inflation when they hit the doubling point. I could be wrong, but it is better than stuffing it into a bank savings account that I had before I went this route! And, since I can *only* buy 10k in i-bonds a year (since I don't go refund or trust) and can *only* buy 10k in EE-bonds, it is simpler for me to just max both of them out every spring. It did start as an emergency fund for me a few years ago and I just kept doing it.
I don't want to trade out the lower fixed rate bonds for higher, when I can just get more bonds. Also, anything I cash out would be in the 24% tax rate so no thanks. I might revisit the idea when I decide to stop working if I have spare cash or something part time when my tax bracket will be in the 0-12% ranges.
Makes sense to me on your reasons, and yes definitely better than stuffing in the bank if you don't need access prior to the doubling effect.
That said the paper bonds with tax refunds are pretty easy to do once a year, as are the trust accounts once you bite the bullet to set it up. The hardest part is dealing with Treasury Direct which you're already doing Note I don't consider it that hard, especially now that they adjusted their password policy to get rid of the virtual keyboard - which was easy to work around anyway. If I ever ran into a problem requiring customer service I will admit I might have a very different opinion of I and EE bonds.
Of the two paths to more I bonds for a single person without a gift box partner overpaying on the extension for a paper refund is easier than trusts. I like to combine tax season with a credit card signup offer (whether zero percent interest, high sign up bonus, etc.). I try to time a credit card signup annually since I know I can generate the spend and get it returned quickly. Personally I deposit the paper bonds into my TDirect account but I know some people like to have some paper assets at hand for (near-instant) cash.
I'm at 38.8% marginal currently and agree, I haven't been trading out of the lower rate bonds (even zeros) just yet. The deferral is too handy.
Getting back on the subject question... stick me in the I bond camp
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Re: EE Bonds or I Bonds this year?
December 2023 CPI is 306.746; in September it was 307.789 (https://www.bls.gov/regions/mid-atlanti ... _table.htm).
So there has been a deflation of 0.34% and accordingly, if inflation were flat for January, February, and March, the next Series I variable rate would be -0.68%. Remember that the fixed+variable can never go below zero. But if it reaches zero or a very low number, there may be an opportunity later this year to dump 0% bonds without the penalty of three months' interest (since there would be none to lose).
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Re: EE Bonds or I Bonds this year?
Makefile wrote: ↑Thu Jan 11, 2024 1:20 pmDecember 2023 CPI is 306.746; in September it was 307.789 (https://www.bls.gov/regions/mid-atlanti ... _table.htm).
So there has been a deflation of 0.34% and accordingly, if inflation were flat for January, February, and March, the next Series I variable rate would be -0.68%. Remember that the fixed+variable can never go below zero. But if it reaches zero or a very low number, there may be an opportunity later this year to dump 0% bonds without the penalty of three months' interest (since there would be none to lose).
Yes, that is a good idea. Any bonds held over 5 years, right? (So that the withdrawal will not incur a penalty)
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Re: EE Bonds or I Bonds this year?
honigvod wrote: ↑Mon Jan 08, 2024 7:57 pm
consinv wrote: ↑Mon Jan 08, 2024 10:53 amThis is a great plan. I was just wondering if the total I-bond amount each year is enough for your living expenses for a whole year?
Not at all! Again, it is a baseline. I figure I-bonds (and eventual EE-bonds) are close enough to inflation to count as having the same equivalent purchasing power when I cash them out in the future.
Bought I-bond in 2021 (when I was 42) for $10k. Cash I-bond in 2031 (when I am 52) for roughly $14k, which should have similar purchasing power. Then I draw upwards of $40k from my index funds, although probably less (I currently live on about $30k a year total). At 60, I supplement the bond baseline with 401k withdrawals. At 70 it is Social Security. The bonds are just my planned 20 year "I won't starve" fixed income before investments are added to it for other necessities and fun as needed.
Got it. That makes sense. I like the staggered income approach to retirement.
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Re: EE Bonds or I Bonds this year?
I have I Bonds that I purchased in 2021 and 2022. They currently have interest rates that vary from 3.38 to 4.35. I was trying to decide if I should redeem them all and purchase the current issue with a fixed rate of 1.30? If I redeem $7,500 and then buy new bonds, does that count toward my annual purchase? (Apologizes if I used any incorrect terminology.) Thanks
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- GreendaleCC
Re: EE Bonds or I Bonds this year?
Postby GreendaleCC »
RajaDada wrote: ↑Thu Jan 11, 2024 8:53 pmI have I Bonds that I purchased in 2021 and 2022. They currently have interest rates that vary from 3.38 to 4.35. I was trying to decide if I should redeem them all and purchase the current issue with a fixed rate of 1.30? If I redeem $7,500 and then buy new bonds, does that count toward my annual purchase? (Apologizes if I used any incorrect terminology.) Thanks
Yes
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Re: EE Bonds or I Bonds this year?
I can’t figure out why anyone would want EE bonds.
You must commit to a 20-year holding to get a 3.5% return, which after taxes is worse than inflation. No thanks, I’d rather sleep in a bunk bed under Oprah.
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Re: EE Bonds or I Bonds this year?
RajaDada wrote: ↑Thu Jan 11, 2024 8:53 pmI have I Bonds that I purchased in 2021 and 2022. They currently have interest rates that vary from 3.38 to 4.35. I was trying to decide if I should redeem them all and purchase the current issue with a fixed rate of 1.30? If I redeem $7,500 and then buy new bonds, does that count toward my annual purchase? (Apologizes if I used any incorrect terminology.) Thanks
Yes it does count against the $10k limit per year.
If you can front the money, I suggest you buy the $10k limit for 2024 before April 30th. Actually on or before April 28th, since Treasury Direct requires 2 business days for settlement according to their website. Then sell the 0% rate bonds later in the year. Starting May 2024, both the fixed rate component and variable rate component are expected to be reduced. Sell when your particular I bond is 3 months old with the newer / lower rate.
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Re: EE Bonds or I Bonds this year?
I guess it depends on the person and how they want to redeem them. I won't be cashing mine in until I am well retired. They are only taxed federally at a point where my 'income' might well be below the standard deduction or at worse partly in the 10% bracket so I should get close to the full amount out of it.
Even with the recent inflation spike, the past 30 years have averaged under 2.5% inflation. There is no guarantee the next 20 will hold there, but it is definitely better than long term average returns for HYSA or CD and well above just stuffing it into a mattress.
I'm already putting the max in my 401k (with company match, target date fund), Roth IRA (a bit more aggressive mix of caps, but might move to target date), and putting an amount somewhere between those two in a taxable index fund for that LTCG. Nothing I have is overly risky long term, but I want an extended 'bond tent' to smooth out rough spots. The I-Bonds are covering the first chunk of it, and the EE-Bonds cover the rest as a predictable fixed income base.
Sure, there are other vehicles I could go with and have read about, but very few come close in tax protection and none hold up against principal retention at that 20 year mark. Besides, I'd be tempted to futz around with things and just want to set it and forget it as much as I can. It forces me to leave it alone. =)
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- Mel Lindauer
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Re: EE Bonds or I Bonds this year?
Postby Mel Lindauer »
Some who've used up all of their tax-deferred space might want them for the additional tax deferral, freedom from state and local taxation, and doubling in 20 years, purchasing them while they're in a high tax bracket and then deferring the taxes until they're in a low tax bracket at retirement.
Best Regards - Mel | | Semper Fi
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Re: EE Bonds or I Bonds this year?
Mel Lindauer wrote: ↑Thu Jan 11, 2024 10:38 pm
Some who've used up all of their tax-deferred space might want them for the additional tax deferral, freedom from state and local taxation, and doubling in 20 years, purchasing them while they're in a high tax bracket and then deferring the taxes until they're in a low tax bracket at retirement.
What’s so magical about doubling in 20 years?
Also, if someone is in such a high tax bracket (i.e., high earner), it seems the 10K contribution limit would “not move the needle” for them.
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