We've been purchasing Ibonds since 2017. These instruments are intended to be held for the long term, which is why you can't redeem them until you've held them for a year and why you lose the last 3 months interest if you redeem them before holding them for at least 5 years. Additionally, the accrued interest isn't taxable until they're redeemed or they mature. They're not very well suited for yield chasing. Also, purchasing TBills will not have the inflation guarantee that Ibonds have.We bought about 60 K of I bonds when the rates were high with no fixed rate . I consider it part of our EF
With rates being low ( I believe 2.96 percent), does it make sense to cash out and invest in T bills or CDs
I think we will need to pay tax on 6-7 K, this year adding that amount doesn’t put us in any new tax bracket .
Has anyone cashed out I bonds after the rates dropped ?
Even our mortgage is 6 percent and we might put 20 K towards that .
Thank you
Whether it makes sense to redeem any low fixed rate Ibonds and purchase higher fixed rate Ibonds depends on a lot of factors.
- When you redeem them, you will owe tax on the accrued interest and you might lose the last 3 months interest as well if you haven't held them for at least 5 years.
- Unless you're willing to open a trust or use the gift-box feature, you're still limited to the $10K purchase per person
- With the $10K reset, you should calculate how long it will take for the newly purchased I-bond to reach the value of your original 0% purchase (a type of breakeven) before it then becomes the winner. It could be that it never does or does so after whatever planning age you have for your max age in retirement. Make whatever assumptions you wish about tax brackets for this analysis. Having a breakeven after your planning age isn't necessarily a reason to not do the reset, especially if you own these as a possible backstop for longevity.
When I did this analysis for us, there was only one I-bond purchase we made that would benefit by a swap-out based on our criteria. But the crossover happened really late in life. We opted to just leave our original one there.
Our plans are to make the two $10K purchases in 2025 and purchase the additional $5K via tax refund. Depending on where it appears rates are headed, we might make the $10K purchases via the gift box before Nov 1st of this year instead of waiting till 2025. This will complete us having maturing I-bonds all the way to the end of our planning ages. Whether we purchase any more after that is TBD.
Cheers.
Statistics: Posted by dcabler — Fri Jun 21, 2024 4:49 am — Replies 20 — Views 1811