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  4. (Via The Finance Buff) I Bonds For The Short Term/TIPS For The Long Term


CDsuckers
  |     |   70 posts since 2022
For my purposes I just hold iBonds as an inflation protected tax-deferred rainy day fund.
At the moment we can meet all of our annual recurring expenses with social security income.
We use our RMD's for annual non-recurring expenses for planned expenses (dental, house, car).
In the event of some totally unexpected expenses we can tap into our iBonds as a back-up plan.
We already have iBonds that are over 5 years old so we wouldn't even have to pay an interest penalty.
This allows me to push as much money into 5 year term bonds and CDs without worrying about EWP's.
So, I really wouldn't sell iBonds and move them into TIPS even with any spread in yield between the two.
If you have to sell a TIPS right now for unexpected expenses, you're going to lose a lot of money.
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Choice
  |     |   937 posts since 2020
May I add...managing expenses and draw down IRA funds or....necessary to keep taxes very low!!!
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CuriousDave
  |     |   233 posts since 2018
If you purchased your I Bonds in their early years (1998 - 2001) you certainly would not want to redeem them yet, though you may need to start planning for the redemptions soon because they mature within 6 to 9 years, and you will want to avoid picking up too much taxable accumulated interest within a short period, putting you into a higher tax bracket.
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Ltssharon
  |     |   472 posts since 2020
Yep, my ibonds were purchased 2000-2003. This year I will begin taking the hit and paying taxes on the accrued interest from 2000-2002 for this year. My reasoning is that I am older now, and if I pass soon I prefer my beneficiaries not have to deal with all that accumulated tax on interest earned over that long period, I will be very careful to keep records and communicate,

Also with those ibonds accumulating in only 10 or 11 years, I am starting to think about slinking into 10 year cd ladder rather than my 2 year ladder that I now have. It seems that going from one length of ladder to a longer ladder requires a bit of thinking and planning though. It keeps life interesting.
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glasses
  |     |   21 posts since 2019
Won't the interest be considered step up in basis to your heirs?
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CuriousDave
  |     |   233 posts since 2018
No, because the tax rule is that accrued and deferred income at date of death (referred to as Income  in Respect of a Decedent, or “IRD”) does not step up the tax basis of an asset upon the death of the owner. For the same reason, there is no basis step up on death for tax deferred retirement plan assets such as traditional IRAs, non-Roth Sec. 401(k) plans, defined benefit plans and deferred compensation.
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Ltssharon
  |     |   472 posts since 2020
Curious dave- do stocks get a step up basis? Their gain can be deferred a long time until you sell them. Thankyou
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w00d00w
  |     |   360 posts since 2012
I thought this an interesting overview:

https://www.investopedia.com/terms/s/stepupinbasis.asp

"The step-up in basis provision applies to financial assets like stocks, bonds, and mutual funds as well as real estate and other tangible property."

It seems to me that TIPS (held in a taxable account), that have a fluctuating market value, would be subject to a step-up or step-down in basis upon death of owner. while I Bonds which are not marketable, would not.
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GreenDream
  |     |   358 posts since 2019
Yes, Ltssharon, stocks get a step up in basis assuming the stock is worth more at time of death than it was at purchase. It gets a step down in basis if the stock is worth less at time of death than it was at purchase. In short, the stock is reassigned to whatever the fair market value is at time of death which can either be higher *or* lower than the original purchase price.
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Ltssharon
  |     |   472 posts since 2020
Oh I think my decision to annually pay taxes had to do with ibonds not getting a step up basis. I tend to forget my reasonings because they are only needed one time. I am not involved in any professional organization . This and google are the sources of my decisions.
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