US Treasury Direct I Bonds: Time To Cash Out?

JVW | Jan 1, 2024 | 83 posts since 2018

Happy New Year 2024 to all. Many of us purchased I Bonds in October 2022 and thereafter when Treasury Direct rates hit a sweet spot. From several conversations here since then, I concluded from my notes that January 2024 would also hit the sweet spot as the best time to cash out. Thanks for the earlier guidance. There was some back and forth in the earlier discussion if January or February would be best but as I recall the greater consensus was January.

Fortunately, no hangover this morning on New Years Day. Thus, I logged in to Treasury Direct. Just as I'd hoped, I Bonds purchased October 2022 for the max allowed per person at $10,000 are now are redeemable for $10,820. As I understand our earlier discussions here, if you wish to cash out, do so as early in January since no further interest will be earned for the rest of this month.

For the current rate period, the I Bond yield at Treasury Direct is listed at just 3.3%.

My wife and I did cash out and Treasury Direct says we will have our transfers within two business days. Gee, just in time for the delightful burdens of tax season!

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Answers

Ltssharon | Jan 1, 2024 | 471 posts since 2020

thank you for the timely reminder

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JeffinEasternFL | Jan 1, 2024 | 744 posts since 2020

Realize if rates drop 30, 40, 50% or whatnot in 2024 as many pundits predict, you'll miss those I bonds and that nice, fixed rate and TAX DEFERRAL. Be sure before you decide! Perhaps hedging by not cashing them all in is your best longer-term decision?

I'm sitting on 3/4 M$ of 'em from early this century ( I often bought to the $30K and then $60K limit per SSN annually) and plan to ride them ALL to 30-year maturity beginning 2031-37. This will help avoid IRRMA when I turn 65 next year - as well as deferring my IRA RMD's until age 75 and then facing IRRMA sometime next decade. Hopefully not until 2037.

That's a lot of compounding that would not take place if the money was paid in taxes and lost forever! Diddo my CD ladder from cy maturity August '24 to mid 2028 with 5 jumbos, 4 of which are all (one each calendar year matures) paying 5% or greater APY and compounding as well. Don't leap before you look!

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Janicefr48 | Jan 1, 2024 | 40 posts since 2022

Here are 2 excellent articles about cashing out I Bonds:
https://www.investopedia.com/want-to-cash-in-your-i-bonds-heres-the-best-time-7969282
https://www.investopedia.com/i-bonds-jan-1-could-be-your-ideal-date-to-cash-them-in-8418134

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JVW | Jan 2, 2024 | 83 posts since 2018

My philosophy on cashing in now is similar to that of Janice. I have one liquid account still earning 5.7 and and one yielding 5.5. With the I Bond rate indexed to inflation and now down at 3.38% it's a no brainer for us to move on. We never intended to hold until maturity.

The link Janice sent to this article lays it out optimal time to redeem by the month the I Bond was originally purchased:

https://www.investopedia.com/i-bonds-jan-1-could-be-your-ideal-date-to-cash-them-in-8418134

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Ally6770 | Jan 2, 2024 | 4,290 posts since 2010

Unless you need the interest to maintain your lifestyle, I bonds are still one of the great ways to defer taxes, and still be assured of not losing a lot of purchasing power with some that have an added % it also is a good way to gift a newborn and also a good way to gift now or at your death. A newborn can cash it in just before the child gets their first job and they will not owe taxes if timed correctly and it can pay for a good share or all of their college or their first car if their parents were not able to save for them.

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Robb | Jan 2, 2024 | 322 posts since 2018

I cashed out as well. I had very low income in 2023 so had extra incentive to cash out after holding 15 months as I wont be paying much tax on these (would have had a bigger tax liability in 2024) and likely would have sold regardless due to the better opportunities elsewhere given these were only paying 3.38%. Might buy some back in April with the higher fixed rate depending on the next rate reset while weighing out other opportunities.

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Ltssharon | Jan 2, 2024 | 471 posts since 2020

Well, thanks all. I made my decision. I redeemed 3 entity ibonds from 2021 and 2022 and four regular ibonds from 2021 and 2022, and then bought 1 entity of 2024 ibonds and two regular ibonds payable upon death with the 1.3 fixed. I had so many ibonds because I had divided the maximum 10 k into smaller chunks with each of my children as payable upon death. I will put the remaining money in a long term cd. I made notes on the interest the redeemed ibonds made, and will just pay fed taxes in 2024 after getting the formal 1099s on the website treasurydirect.gov. Thanks to all for the ideas and perspectives and research articles. It did take most of Jan 1 to think about it, look up dates, etc., make the transactions, make notes in my spreadsheet, and make a note for my 2024 tax file, but I did it. I have to stay organized because my financial memory is short and I do it all myself. I have to think of it as sort of a hobby. It is sort of a bunch of work for relatively small investments, I admit. I expect the redeemed money in my bank on Thursday, so on Thursday I will figure out what cd to buy to put the remaining cash from the redemptions. Happy 2024. Also, thanks for simplifying how I could make another trust if i ever wanted to.

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Rightdx | Jan 4, 2024 | 43 posts since 2022

I plan to buy more I bonds. Sure, I might be able to squeeze out a higher yield elsewhere for now, but for me holding I bonds is mainly a hedge against future ever-increasingly likely US debt crisis with hyperinflation. I will sleep better knowing some of my funds are protected.

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Steve58 | Jan 4, 2024 | 459 posts since 2018

i bought 90k worth of ibonds in Sept and Oct 2022. I cashed in 70k these past two months. I cannot cash the other 20k in until Jan 1, 2025, but I plan too. Used the money to purchase 5.4% 5 year CD. I will not be able to buy new I bonds until 2026. I figure there is no use holding them if there is no premium above inflation, like you can purchase now.

All in all, the 70K earned the equivalent of ~6.56% for a 15 month duration. The last 20K will earn ~5.19% for a 27 month duration (assumes 3% at May update). Not to shabby of returns if looking at short term horizon at the time of purchase.

Steve

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Ally6770 | Jan 4, 2024 | 4,290 posts since 2010

Steve58,
You will not be able to compound interest for a longer period and just for 5 years, and you must pay taxes yearly on the interest. You will no longer be able to defer income tax or just take a little out of your bond if you need some of the money with no penalty on the older I bonds. There is large penalty with the CD's to break on most of them and the no penalty CD's pay a lower interest. A lot to consider, and not just the yield. Assimilate your decision to your situation. Also maybe you could in a higher income tax bracket with the CD interest and income tax rates are going up after next year for most of us. The tax cut for most of us that were not fortunate and get a tax cut over 5 years will be paying more. Those of us who were not included to get it extended over the shorter time span are not on the list to have the the tax cut expanded during the hearings this year. Time is running out for us, unless it done after the next election.

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Steve58 | Jan 6, 2024 | 459 posts since 2018

Ally,
My thoughts on these topics...

"You will not be able to compound interest for a longer period and just for 5 years"

That's not exactly correct. When a 5 year CD matures, and you fund a new 5 year CD with the full proceeds (interest and original deposit) from the original CD, you continue to compound interest as if the original CD was a 10 year CD. Of course I have no idea what the new interest rate will be for those additional 5 years. But for 5 years I get 5.4% guaranteed. With the I BOND purchased in Oct 2022, I only know the interest rate for the next 6 months. Right now that is 3.38%. Will it be higher or lower when May numbers come out? I'll take the 5.4% for 5 years guaranteed right now.

"you must pay taxes yearly on the interest. You will no longer be able to defer income tax"

Like you state, each individual situation is unique. For me, I am in the lowest tax bracket I have ever been in. I am 65, and in 8 years I will be forced to take large minimum distributions from my IRAs at 73. Deferring taxes is of no advantage to me at this time. If i waited until after 73 to cash in I bonds, then that interest will be taxed at more than double what I currently pay in federal taxes on CD interest these years. I live in AZ and we have a flat tax of 2.5%, so that is a nominal consideration at best.

Interest rates and tax rates are unknowable in the foreseeable future. I hope they freeze Trump tax cuts for us before 2026. But if Democrats are elected, you can bet they will let them lapse, and we will all be paying higher taxes. Better to bet on paying taxes on your interest now as compared to > 5 years out.

CDs versus I bonds? If I can get a better guaranteed rate for an Ibond over a few years than a CD, I will purchase the I bond (like the Oct 2022 sweet spot). Rate and long duration is king in my book, and I bonds do not fit in my plans at this time.

Steve

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Ally6770 | Jan 6, 2024 | 4,290 posts since 2010

Steve you are correct, I should have said at the same rate. I have done 5 to 15 yr. CD's since I have started getting CD's and have reinvested all the interest each time. Hard to find 10 and 15 CD's now except for brokered CD's and at my age I will not do them now. I do some I bonds to defer interest a little to lower my income a so I can convert more to a Roth for the kids and with compounding that interest at the inflation rate it will help me until I get all the traditional IRA's converted if I live that long. And the kids can cash just a few or part of them as they wish unless they have to pay all at once when I die if they have to change the ownership right away. Does anyone have any information on that. Can they wait to change the ownership on the I bonds?

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Steve58 | Jan 6, 2024 | 459 posts since 2018

I do utilize No penalty CDs to hold my emergency savings. I just loaded up this past month on NP CDs, all with duration of 12 months, and the total average return is 5.38%. Not to shabby. I purchased these as many CDs for much smaller and varied amounts.That way I can cash the NP CD that meets my needs, and I do not have to cash a large NP CD out and then find a place to put the balance of what I did not need if rates continue to fall. If rates do start to rise, I will cash them all in, and purchase new longer term NP CDs at the higher rates.

Steve

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Ltssharon | Mar 18, 2024 | 471 posts since 2020

I bought 30 k ibonds in 2000. I also inherited 30k ibonds in 2000. That along with other expected income in 2030 would put me in the 32 or 33 percent income tax bracket for 100,000 dollars. Well, I just now cashed in a 10k original price, 41788 (31788 interest ibond), and will pay 24 percent tax on that. I will take the 41788 and put it in a 5 year cd. I hope I made a wise move. I could do another 10k 2000 ibond now also, and am wondering if it would be wise. Anyone have a thought on this?

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choice1 | Mar 18, 2024 | 370 posts since 2023

Last year I planned to redeem substantially more and did it by also planning how to dodge the tax bill. Results are in…success. Had to take a substantial QCD in form of annuity and able to do that (converts into a stream of ordinary income). This year’s redemption depends in part on fixed ibond rate reset on May 1…which I believe to be larger than now…and longer term CD rates to move redemptions funds to.

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w00d00w | Mar 19, 2024 | 360 posts since 2012

I could do another 10k 2000 ibond now also, and am wondering if it would be wise

I suppose it depends on your tax situation. Realizing more interest income in 2024 could push a taxpayer over the net investment income tax threshold. If receiving Social Security, could increase taxation rate of Social Security benefit. If over age 65, could result in higher IRMAA bracket in 2026. Lots of potential "gotchas." Kudos to you if you have your eye on all of these possible effects.

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Ltssharon | Jan 1, 2024 | 471 posts since 2020

Clarification please: Does : " thereafter" in the first sentence, jvw, also include ibonds purchased in January 2023? Or is it just any ibonds at all purchased anytime in 2022? thank you

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betaguy | Jan 1, 2024 | 180 posts since 2022

I bonds purchased in January 2023 are paying 4.35%

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JVW | Jan 1, 2024 | 83 posts since 2018

Hi Sharon, you lose your last three months interest if not holding to maturity so the goal is to have the penalty come off the most recent three months that earn a lower rate. I'm sure others will also weigh in, too.

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Ltssharon | Jan 1, 2024 | 471 posts since 2020

All righty then. Mine were purchased feb. 2022. and I think I shall wait until June 1, 2022. Thanks. They are right now earning 3.38 percent.

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Janicefr48 | Jan 1, 2024 | 40 posts since 2022

JVW, I am assuming the $10,820 is before the penalty is taken out. Do you know what the penalty was on your bonds that you cashed out today?
I am also debating the pros and cons of cashing mine out.

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Kirkland | Jan 1, 2024 | 374 posts since 2014

Janicefr48, The $10,820 already has the 3 month penalty taken out. I also purchased a $10,000 Series I Savings Bond at the end of October 2022. I logged into Treasury Direct at 12:18 am on December 1st, 2023 and redeemed mine. Because my interest income will be so high in 2024 and 2024 IRMAA concerns, I wanted to recognize my interest in 2023. Treasury Direct schedules the return to you 2 business days later, in my case, it was 12-5-23, and I received $10,764. the official redemption date was confirmed as 12-5-23.

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Janicefr48 | Jan 1, 2024 | 40 posts since 2022

Thanks. I just read that on one of the websites I visited. I plan to cash mine out tomorrow and move them to a savings account I have earning 5.5% until April. I have several add on CD's from 12 to 60 months that I will probably end up using if the savings rate drops
I found some awesome articles at www.investopedia.com. I just posted the links to 2 of the very best relating to the I Bonds most of us bought.

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