I’ve been handicapping the fixed-rate adjustments for 11 years, and my best speculation is that the yield of a 10-year TIPS needs to be above zero for the Treasury to even consider raising the fixed rate
As of Friday’s market close, the real yield of a 10-year TIPS had increased to -0.08%, jumping 100 basis points higher in just five months. The I Bond now has only an 8-basis-point advantage over a 10-year TIPS. Yet, I’d say the possibility of a higher fixed rate remains very slim — for the May reset. In November, much more likely.
And it’s still better to buy the current bonds than the May ones, unless somehow you’re in the edge case of investing for exactly 12-13 months and need to cashout in a way that would otherwise lose the 9.6% rate for the penalty. Buying in May let’s you lose the future unknown 3 months interest instead of getting the 7.1% in full and then losing some of the 9.6%.
Are there any serious downsides for getting a (DIY) revocable grantor trust wrong? Assuming you don’t die? I’m assuming when Ibonds are no longer interesting, you dissolve the trust and move along with your life.
So I just looked into the second part and I was wrong – the gift I-Bonds that now belong to my child could never end up in any 529 account, because for that, “the owner must be at least 24 years old before the bond’s issue date.” (pub 970). So I could only contribute my I-Bonds into my 529 and avoid some or all of interest income tax if I squeeze under the MAGI limit. But as far as the child’s I-Bonds go, it seems like the only way to minimize taxes is to file an annual return for the child. Or maybe take a year-long sabbatical, though if I did that I’d probably be better off concentrating on a Roth conversion instead.
The thing to do would be to take your child’s I Bond interest before it hits the standard deduction, and then start filing annually at that point. Then, when they turn 18 and if they want to buy I Bonds on their own, they could use the method mentioned in Publication 550 to switch back to the accumulation method to provide for simplicity.
This site discusses how, if a parent purchase a savings bond for a child with the parents funds, they can do some TD.gov paperwork and get the bond reissued in the name of the parent. Note that if you can do this, you then do quality for the interest exclusion since the (new) owner will have been 24 when the bond was purchased (not in their name).
They also describe how you can contribute the savings bond to a 529 plan, excluding the interest, and specifically how to complete the non-intuitive 8815 form for the case you have no educational expenses but are just rolling the bonds into a savings plan. Plus, the 529 is then far more flexible, since the qualified expenses are more lenient, no AGI limits, etc. there are even workarounds described for other relative-owned bonds, ie grandparents, who can make a 529 for themselves, contribute the bonds, and then change the beneficiary to their grandkid.
Wow. I thought we discussed some fiduciary / UTMA-like responsibilities that befall a parent who gifts their child an I-Bond. But with the above it seems like buying in a minor-linked account or even buying a gift can all be reissued back to the parent’s name, which effectively takes back the gift?
And if so, wouldn’t this almost automatically exceed the annual limit? And what if the gifts are undelivered… I could put all my cash into gifts for my child and have them reissued back to my name…
And… the new trust account failed the automated identity verification, likely because all my stuff is frozen from a recent fraud attempt. So, paper forms with a signature guarantee, and I’ll be getting May’s rate. Never thought I’d be rooting for more inflation, lol.
Bump. Last day for April I bonds for any last minute procrastinators. I bought mine last night and TD.gov pulled the funds first thing this am from my bank.
After today our attention must shift to the first of November rate reset. It is not possible this early to know what will happen. It’s all guesswork this far out. However:
As matters unfold late spring and into the summer, it will become increasingly possible to estimate the November first outcome. The war, Powell, so many other things, will come into play. Stay tuned.
To be clear, when I referenced the fixed rate (and possible increase) as being a factor, I was thinking more of a year or two in the future as those gift bonds are still waiting to be distributed. But as I said, the higher rate being earned now dwarfs the extra you’d get from waiting for a fraction of a percent increase in the fixed portion a year from now. Unless you plan to hold the bond nearly to maturity.
I bond owners got 0.56% for April’s CPI towards the next 6 month semiannual interest period. This corresponds to roughly a 7% annualized inflation rate in this first look into the future of rates after the 9.6% rate ends.
I was fortunate to be able to buy early and of course the May first rate reset was mostly a no-brainer. So when I bought my bonds a great year was pretty much “in the bag”. But however:
The November first rate reset was another story. It was an unknown. It could not be known back when I bought my bonds for 2022. Nevertheless, I would have to allow that things today are looking up for November. Sure, of course it remains VERY early and nothing is set in stone. But given the timid and hesitant Fed, together with ongoing total incompetence by Biden and his fellow travellers, I see nothing on the horizon so far which points to diminution of inflation. More will become known as the summer unfolds, but I continue to like my I bonds a lot.
Agreed. But of course that is not the fault of I bonds. In fact, for these difficult times I bonds are a significant source of salve, where the latter is tough to come by.
There have been multiple threads on the Bogleheads about a small hiccup locking people out of their treasury direct account. They are overwhelmed by new customers and you cannot get through to them on the phone to straighten it out.
