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  • i-bonds

    Anyone buying i bonds today? Fixed rate hit 0.5% today. I am thinking yes to $20k and then buying another $20k potentially next year
    LivingAlmostLarge Blog

  • #2
    Hot diggity! Thanks for posting this -- I'm on a business trip, and I forgot that today was the rate release. I'll double-check, but I'm pretty sure that I already put in an order to buy some later this month (last week of Nov). I basically buy $5k every May & Nov. What I haven't done (but may consider, if I have the cash available) is buying another $10k/yr for my wife as well.

    I know I've researched this in the past, but I forget... I/EE bonds are tax-free if used for college expenses, but does anyone know off-hand if the ownership matters? Do they have to be in the name of the parents vs. the child? If they can/should be owned by the child, another option could be purchasing some in my sons' names.... But I don't think I'll have that much cash available to do (at least not within the next year or so).

    ETA: Just checked, and my order is in fact already in for 28 Nov (taking advantage of earning a full month's interest for holding it just a couple days). Also of note, the composite rate is 2.83% for the next 6 months. My Ally savings are earning 1.9%, so the extra 1% is nice....and fairly typical of my experience with I-Bonds... They've typically tended to earn .5-1% more than my online savings accounts have.
    Last edited by kork13; 11-01-2018, 03:13 PM.
    "Praestantia per minutus" ... "Acta non verba"

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    • #3
      Kork the EE bonds have to be in the parents name to be used tax free for kids college. If kids have them in their names they have to wait until they're 24 to use them tax free for school.

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      • #4
        Good to know. I'm buying at the end of the month.
        LivingAlmostLarge Blog

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        • #5
          Tax free for college, but there are income limitations. For example, in 2017, you had to have MAGI less than $116,300 if married filing joint.

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          • #6
            Originally posted by moneybags View Post
            Tax free for college, but there are income limitations. For example, in 2017, you had to have MAGI less than $116,300 if married filing joint.
            Our income is higher than this, so does this mean if I buy I bonds to use for DD's college in 8 years it would grow tax free but I'd have to pay taxes on it when I withdraw to use for tuition payments?

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            • #7
              I have looked into using I bonds to pay for my daughter's college. I don't think I will. You can only use it for tuition and fees. No books or room and board. The benefit is reduced if you have scholarships, fellowships, use the tax free portion of a CSA, Veteran's benefits, employer assistance, "qualified tuition reductions", or any expense used in figuring the American Opportunity and lifetime learning credits. So it has very limited use for most people.

              Taken directly from the IRS website:

              Modified adjusted gross income limit.



              The interest exclusion is limited if your modified adjusted gross income (modified AGI) is:
              • $117,250 to $147,250 for married taxpayers filing jointly, and
              • $78,150 to $93,150 for all other taxpayers.

              You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status.

              The only bright side is that it is your MAGI at the time you cash in the bonds and not when you buy them, so we would probably fall under the MAGI if for some reason my husband was retired when she went to college. That is a slim possibility but not totally out of the picture. I'm just not seeing a great advantage to using I bonds instead of funneling the money into a CSA for us.

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              • #8
                Thanks for the info msomnipotent. My husband might also be retired when our daughter goes to college which is how we would qualify for the tax-free use for tuition. I guess I'm leaning toward I-Bonds for our extra savings/EF because we don't have to use it for her college and it will grow tax free regardless. We bought a CD from Ally that matures in Jan but we have to pay taxes on the interest immediately and the I-bond rate is currently higher.

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                • #9
                  Resurrecting this old thread to make a note that I was thinking about I-Bonds today (yeah, that's the excitement that is my life ), and had the thought that with today's higher rates, it may be a good option to redeem some of my old I-Bonds currently earning 2.3% (0.0% fixed rate) and rebuying new I-Bonds with the current 2.83% (0.5% fixed) rate. I don't want to invest new cash into them right now due to the likelihood of another upcoming move in the next 6 months, but earning an extra .5% on my bonds for a few minutes of my attention isn't bad.

                  In that process, I also realized that the updated rates for I-Bonds are due for release next week. Any guesses on up/down movement of the rates? I'm expecting it to be relatively steady.
                  "Praestantia per minutus" ... "Acta non verba"

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                  • #10
                    Originally posted by kork13 View Post
                    Resurrecting this old thread to make a note that I was thinking about I-Bonds today (yeah, that's the excitement that is my life ), and had the thought that with today's higher rates, it may be a good option to redeem some of my old I-Bonds currently earning 2.3% (0.0% fixed rate) and rebuying new I-Bonds with the current 2.83% (0.5% fixed) rate. I don't want to invest new cash into them right now due to the likelihood of another upcoming move in the next 6 months, but earning an extra .5% on my bonds for a few minutes of my attention isn't bad.

                    In that process, I also realized that the updated rates for I-Bonds are due for release next week. Any guesses on up/down movement of the rates? I'm expecting it to be relatively steady.
                    I've seen these discussed on the boards before but never did any research on them.

                    Would you be willing to explain exactly what these are and how they work?
                    Brian

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                    • #11
                      Here's the official page with info.

                      https://www.treasurydirect.gov/indiv...res_ibonds.htm
                      Steve

                      * Despite the high cost of living, it remains very popular.
                      * Why should I pay for my daughter's education when she already knows everything?
                      * There are no shortcuts to anywhere worth going.

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                      • #12
                        Originally posted by bjl584 View Post

                        I've seen these discussed on the boards before but never did any research on them.

                        Would you be willing to explain exactly what these are and how they work?
                        Sure. I-Bonds are pretty simple, they're basically an inflation adjusted federal bond (non-transferable, so it can't be bought/sold), with a variety of pros and cons. They earn a composite interest rate that is a factor of the fixed rate (set for life at issue), and the inflation rate (adjusted every six months in May/Nov according to the CPI-U). They have a goofy formula for it, but in the end, I've found it to be roughly .5-1% higher rates than you get at online high yield savings accounts like Ally/CapOne.

                        Pros:
                        - Zero principle risk, guaranteed by the federal government
                        - Inflation adjusted every six months, so you never lose buying power
                        - Interest can be tax deferred or paid annually (you just have to decide which upfront & stick to it for the life of the bond). If used to pay for a child's (or your own) education, interest can be tax free. They're also state tax free (always).
                        - Earn interest for up to 30 years

                        Cons:
                        - The Treasury Direct website is awful & a pain to use
                        - I-Bonds are inaccessible for the first year, and have a 3-month interest penalty if redeemed within the first 5 years.
                        - Purchases are limited to only $10k in I-Bonds per SSN per year, unless you get some paper I-Bonds with your tax return. I forget those limits.
                        - Did I mention the website? Ugh.....

                        There are surely some other notables, but that's what comes immediately to mind. I use them for the majority of my emergency fund to ensure it keeps up with inflation. If you're wanting to hold cash for a mid-term period (1-10+ years), they're a good option. They earn interest like a 3-5 yr CD, but have a super small 3-mo redemption interest penalty.
                        "Praestantia per minutus" ... "Acta non verba"

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                        • #13
                          Thanks for the info
                          Brian

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                          • #14
                            Originally posted by kork13 View Post
                            Resurrecting this old thread to make a note that I was thinking about I-Bonds today (yeah, that's the excitement that is my life ), and had the thought that with today's higher rates, it may be a good option to redeem some of my old I-Bonds currently earning 2.3% (0.0% fixed rate) and rebuying new I-Bonds with the current 2.83% (0.5% fixed) rate. I don't want to invest new cash into them right now due to the likelihood of another upcoming move in the next 6 months, but earning an extra .5% on my bonds for a few minutes of my attention isn't bad.

                            In that process, I also realized that the updated rates for I-Bonds are due for release next week. Any guesses on up/down movement of the rates? I'm expecting it to be relatively steady.
                            Kork, I share your love of I-bonds. I was just thinking the other day how much I miss the old paper savings bonds. The art on those things was great and it was nice to get something other than marketing messages in the mail.

                            [email protected]
                            202.468.6043

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                            • #15
                              Originally posted by james.hendrickson View Post

                              Kork, I share your love of I-bonds. I was just thinking the other day how much I miss the old paper savings bonds. The art on those things was great and it was nice to get something other than marketing messages in the mail.
                              You can still buy paper bonds but I think you can only buy $5,000/year instead of $10,000/year if you do it electronically. I'm not sure why they do that but they do.
                              Steve

                              * Despite the high cost of living, it remains very popular.
                              * Why should I pay for my daughter's education when she already knows everything?
                              * There are no shortcuts to anywhere worth going.

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