Can you explain TIPS to me?

[Thrif-t]

I've been on the treasure direct website trying to read up, but I'm still confused. Can anyone explain it in dummy terms? I've grasped that I can invest in a 5-30 year maturity and that the interest goes up with inflation but honestly that's about it. Oh wait one more thing I got, you get interest every 6 months. But I'm wondering do you pay taxes on your earnings at the end of the investment period?

I guess I thought it was going to be like buying saving bonds but it seems maybe a little too complicated for me, so if anyone can simplify for me I'd appreciate it.

[jIM_Ohio]

Institutional - Treasury Inflation-Protected Securities (TIPS)

When a TIPS matures, the investor is paid the inflation-adjusted principal or original principal, whichever is greater. Since a TIPS investor won't receive less than the original principal, the investor's original principal amount is protected against deflation as well.

Each month, the U.S. Treasury publishes daily index ratios that are used to adjust the principal of TIPS. The index ratios are based on the latest changes to the Bureau of Labor Statistics Consumer Price Index for All Urban Consumers (CPI-U): U. S. City Average, by expenditure category and commodity and service group (not seasonally adjusted).

Interest on TIPS is exempt from state and local taxes but is subject to federal tax. TIPS investors pay federal income tax on interest payments in the year they are received and on growth in principal in the year that it occurs.

Two forms are used to report the taxable income earned from TIPS:

Form 1099-INT shows the sum of the semiannual interest payments made in a given year.
Form 1099-OID shows the amount by which the principal of your TIPS increased due to inflation or decreased due to deflation. Increases in principal are taxable for the year in which they occur, even if your TIPS hasn't matured, so you haven't yet received a payment of principal.

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Tax considerations for TIPS also from TreasuryDirect.

I can regurgitate or paraphrase what they said, but I think the language is pretty straightforward.

(Edit: I see Jim beat me to it. )

[jIM_Ohio]

Tax considerations for TIPS also from TreasuryDirect. I can regurgitate or paraphrase what they said, but I think the language is pretty straightforward.

we posted at same time
I took the time to regurgitate LOL

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we posted at same time
I took the time to regurgitate LOL

You're a better man than me. I'm too lazy I guess.

[kilapapipa]

T= Thought
I= Information
P= Plan
S= Solution to problem

Just had to do this. Sorry it isn't what you are talking about.