ibonds

[jpg7n16]

Actually for Ibonds, the interest is tax defered, which makes them even more attractive. Too bad soon you can only buy $5000 per year per SSN.

Edit: But if you do like Slug suggests and cash them out when the fixed portion is greater than 0%, then I guess you would owe tax on the interest at that time. I plan to buy $20000 this year for me and my wife, but I am going to wait until October to see if the fixed portion goes up from 0%. I want to hold them for at least 5 years to defer taxes. Not that I should be too worried about taxes as right now I have investment losses of $45,000 :-(

Looks like we're both right... kind of.

From: Publication 17 (2010), Your Federal Income Tax

Reporting options for cash method taxpayers. If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways.

• Method 1. Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. (However, see Savings bonds traded , later.)
  Note. Series E and EE bonds issued in 1980 matured in 2010. If you have used method 1, you generally must report the interest on these bonds on your 2010 return.
  
• Method 2. Choose to report the increase in redemption value as interest each year.

I had taken a class that told me it must be method 2. Guess that class was wrong - and therefore I was wrong as well! (You can report it each year, but you don't have to) If you have the option to defer the interest, I see no reason why you shouldn't.

[GaelicWench58]

When I saw that May was going to bring, yet once again, a 0% fixed rate, I decided to hang tight until November. But now with QE3 in place, with interest rates remaining rock bottom low, I wouldn't be surprised if nothing mind blowing occurs in a few months.

Now and then, I hear the word "inflation" slip out, but only fleetingly so, and not by accident either. It was mentioned that inflation would start rising and interest rates along for the ride if a default happen and/or our rating went down. But the Fed decided to keep rates low anyways, ergo Quantitative Easing.

For me, it continues to be the left hand not knowing what the right hand is talking about....as long as it is to help the banks from imploding once and for all.

But I digress....

[ukgaz]

Thanks for the info on these. Just have one question

So on the Treasury Direct it shows the current Composite rate of 4.60% for I bonds issued May 2011 – October 2011

So if I purchased a bond now would I get that rate of 4.60 for the full 30 years? and it would not go down?

[kork13]

So on the Treasury Direct it shows the current Composite rate of 4.60% for I bonds issued May 2011 – October 2011

So if I purchased a bond now would I get that rate of 4.60 for the full 30 years? and it would not go down?

No, that only means that for the period of May 2011 – October 2011, your freshly purchased I-Bonds will earn an annualized 4.6%. After 1 Nov, a new composite rate will take effect based on your 0.0% fixed rate and the new inflation rate. So pretend the new inflation rate becomes 1.4%. Your I-Bonds will earn an annualized 2.8% from Nov 2011 - Apr 2012. Then it'll change again, keeping your same fixed rate and the next inflation rate.

[ukgaz]

Thank you Kork13