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  • #16
    Originally posted by disneysteve View Post

    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.
    Woah, you call sill buy paper bonds? I thought they had become pretty much extinct. I love paper bonds.
    james.c.hendrickson@gmail.com
    202.468.6043

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    • #17
      Originally posted by james.hendrickson View Post

      Woah, you call sill buy paper bonds? I thought they had become pretty much extinct. I love paper bonds.
      I just checked. Apparently you can only buy paper bonds if you do it with your tax refund. Never mind.
      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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      • #18
        Originally posted by kork13 View Post

        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.

        Yes--the 5k as a tax refund in paper bonds is in addition to the 10k limit. As another "con", though, the tax refund in paper bonds is not 1-5k bond, but rather it is broken down into several smaller denominations. (I would have to google that to find out the specific denominations as I can't remember off the top of my head).

        Also, another con is you can not defer paying taxes on the interest beyond 30 years. So, if you buy them at a youngish age--say in your 20s and 30s thinking they would be used at some indeterminate time 30 years in the future (when you are "old" ) towards buying a retirement property on a lake, but your spouse decides he (or she) likes his (or her) job and keeps working.....you could end up paying taxes on 30 years worth of interest during what may turn out to be your peak earning years ....

        And, then there is the website.... As a subset complaint to the website--Treasury does not mail 1099's--it is only electronic. And, the format for the electronic 1099 is not on a single page--it is multiple pages. It is almost as if they are unconcerned about the end user. Another subset complaint about the website: the website is tied to a single login--not joint. So, a person could pass away and the surviving spouse might have difficulty finding/accessing the bonds. This problem becomes even more complex for non spouse beneficiaries who might not even be aware there are bonds. There used to be an online search function, but they shut that feature down a few years ago. It's almost as if they would prefer to the keep the money.....




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        • #19
          ^ For that reason I have kept all my Series EE savings bonds in paper form. I got a Treasury Direct account, thinking I'd transfer them to the site, but then thought, my family will never find them!

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          • #20
            So buying the ibonds last year I should have gotten a 1099?
            LivingAlmostLarge Blog

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            • #21
              No, they only issue the 1099-INT when you sell the bond. You do have the option to report annually, but you have to go about it a bit differently. Details from the Treasury here.
              "Praestantia per minutus" ... "Acta non verba"

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              • #22
                This reminded me to go in & swap out some of my older I-Bonds (earning 0% fixed rate) for some new ones earning the current .5% fixed rate. It's from my Emergency Fund, so getting it to stay ahead of (or at least keeping up with) inflation is important for me.

                It did bring up a question, though -- how are I-Bonds taxed? Do they qualify for LTCG rates, or are they taxed as ordinary income? I've never sold these I-Bonds before, and I'm just not familiar with how the interest payments are treated.

                Separate note: The current rate has actually gone down with the May rate update, to a composite 1.9%. Fixed rate stayed the same at .5%, inflation rate dropped to the .7% semiannual rate. It's tempting to keep the money out of the I-Bonds for now, and just keep it in my Ally account earning 2.2%, Only thing that makes me want to send it straight back into the I-Bonds is the 1-year minimum holding period, so I kinda want to get through that sooner than later....
                "Praestantia per minutus" ... "Acta non verba"

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                • #23
                  Originally posted by kork13 View Post
                  It did bring up a question, though -- how are I-Bonds taxed? Do they qualify for LTCG rates, or are they taxed as ordinary income? I've never sold these I-Bonds before, and I'm just not familiar with how the interest payments are treated.
                  It is ordinary interest. Set a reminder to check your treasury direct account for the 1099 at tax time, because they do not mail them out.

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