My mother in law purchased a couple of I bonds for my wife several years ago. The total value of them is $3600. They earn such a small amount of interest, so we were thinking of cashing them out and dumping the money into an IRA. I realize there would be tax on them when cashed, as well as it would boost my income for the year a bit. However I feel the IRA would be a better return. Thoughts?
I bond question
- Thread starter bradr
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recurveman
Well-known member
Not a CPA. I believe you would only have to pay on the "gain" and not the $3600. My guess is the amount would be so little it wouldn't matter. Plus, it will be much better to get that money working in a good mutual fund than sitting in a bond.
Kinda what I was thinking. It'd be convenient as well since we already have the IRA in place with mutual funds. I have a call into my CPA as well. Thanks
Cheesehead
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TL; DR version: pay a small amount in tax and do it. +1 points for going Roth and buying low-cost index funds like VOO)
Longer version: I-bonds are interesting as they protect from inflation. Nice article to understand them is here (https://www.google.com/amp/s/www.ma...urys-i-bond-is-a-wonderful-product-2019-07-24)
Salient points:
-your taxes for the year that you cashed out would go up in the sense that any gain (today’s sell value less what was paid) would be subject to long term capital gains (ie, varies but for example, 0% if filing married filing joint and less than $80k, 15% if between $80-$496k)
-if held for less than 5 years, you’d forfeit 3 months worth of interest (see article)
-you might consider whether you have any tax loss carry forwards or tax losses to harvest this year to offset things
-any gain Related tax is likely to be so immaterial it doesn’t matter and just sell them and invest unless you need it for emergency liquidity (and even then, Roths work well for emergency liquidity)
Matt
Longer version: I-bonds are interesting as they protect from inflation. Nice article to understand them is here (https://www.google.com/amp/s/www.ma...urys-i-bond-is-a-wonderful-product-2019-07-24)
Salient points:
-your taxes for the year that you cashed out would go up in the sense that any gain (today’s sell value less what was paid) would be subject to long term capital gains (ie, varies but for example, 0% if filing married filing joint and less than $80k, 15% if between $80-$496k)
-if held for less than 5 years, you’d forfeit 3 months worth of interest (see article)
-you might consider whether you have any tax loss carry forwards or tax losses to harvest this year to offset things
-any gain Related tax is likely to be so immaterial it doesn’t matter and just sell them and invest unless you need it for emergency liquidity (and even then, Roths work well for emergency liquidity)
Matt
RobG
Well-known member
Believe it or not, right now those I-bonds are paying more interest than any low risk bond you will find. If you have bonds in your portfolio these are outperforming them so I wouldn't be so quick to cash them in. If nothing else, they could be used as part of an emergency fund.
I'm pretty sure the earnings are taxed as interest, not capital gains. However, if you use them to pay for education you won't pay any taxes on them.
I'm pretty sure the earnings are taxed as interest, not capital gains. However, if you use them to pay for education you won't pay any taxes on them.
L
longbow51
Guest
Buy ammo; it will likely appreciate more than stocks or bonds 
