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Long-Time I Bond Investors Face A Tax Time Bomb

Sherlock
  |     |   48 posts since 2020

https://tipswatch.com/

U.S. Series I Savings Bonds are a unique investment because all interest is rolled into principal until redemption, and in most cases, all the compounded earnings are tax deferred until the I Bond is redeemed or matures.

A rather large tax bill is coming for investors in these early-year I Bonds. When the I Bonds are redeemed or mature, the entire amount of interest will be subject to federal income taxes in that year.

Tipswatch article discusses strategies

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6


w00d00w
  |     |   360 posts since 2012
tax planning can't be overlooked. my current preference, subject to change, is to hold long-term TIPS in a traditional IRA instead of I Bonds in taxable account. doing it that way has some negatives though...the state tax-exempt interest benefit of TIPS is lost as is the deflation protection that I Bond offers which TIPS does not.
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3
MY2CENTSWORTH
  |     |   440 posts since 2016
Yep, that is why I chose the option to claim any interest in the year it is earned. For me that made the most sense as far as controlling taxable income is concerned. One can't be too careful when it comes to the various planning opportunities when it comes to Roth IRA conversions, RMD's and even the dreaded IRMAA bracket as they pertain to income while trying to maximize the lowest possible tax bracket. Things change and the last time I checked my crystal ball it was still cloudy.
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4
Ally6770
  |     |   4,308 posts since 2010
The bonds can be used for college. With the old E bonds I transfered mine to our son and he cashed them in a year before he went to work before college
and it was all tax free. This was in the 70's and I am not sure you can do that now without a tax consequences. I think though that they are still tax free if used for education. I use them now to defer income so I convert more to a Roth. If I get it all converted I will pay tax on some of them or all of them so the kids will have them tax free when they inherit them and because they are in their 60's and I don't know when they will retire then will be able take out a little at a time it they want to help them through retirement and not collect SS until they are older. They are near retirement age now.
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3
Ltssharon
  |     |   472 posts since 2020
sounds like a great plan.
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1
Rickny
  |     |   1,297 posts since 2017
Bonds can be used for education (tax advantaged) if your are below certain income levels. I used a 529 in NY which has up to 10k deduction on 529 contibutions foy NY residents. Leftover money in 529 can be converted to a Roth IRA.
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Ally6770
  |     |   4,308 posts since 2010
Not sure how we were able to do our bonds. It was in the late 70's or early 80's. We had high inflation and my husband was working only 3 days a week and I started working 2 jobs one in the bank and was elected twp treasurer. We were living in a basement of the house we were building and my husband worked on the house the days he has not working. I know it was done through the bank I worked at and they sent them in to the gov. We took copies of the bonds first in case they were lost etc.
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