More attractive than your savings account, and more beneficial than gifting this Holiday Season with giftcards? Likely yes - and exempt from State and Local taxes!
The Details, and an Example:
Through October 31, 2022, you can purchase Series I Bonds from the U.S. treasury through TreasuryDirect that pay 9.62% tax deferred interest for six months, guaranteed
Interest is added to your principal balance at the end of six months, and pays interest on your new principal balance at the new rate it sets on November 1, 2022, for the period.
You can purchase for yourself, your spouse, your children (through a Minor-Linked account linked to a parent's account), your Trust(s), your company(ies) (yet another reason to talk to us about opening a side company!) and as gifts by purchasing giftboxes.
The bonds can be cashed in after 12 months, however if cashing in before 5 years, 3 months interest will be foregone.
Interest is tax deferred compound interest (semiannually) until year 30, or when you you cash in (i.e. when the rate eventually falls to a rate you find no long attractive and your exit this strategy)
Interest rates on I-Bonds track with the consumer price index inflation rate (CPI-U), so we can assume reset rates will be impressive for a while
Limit is $ 10,000 per person (plus $5,000 in paper bonds with a per return tax refund)
State and Local tax free. And, federal tax free for qualifying educational purposes.
Example: Michael and Christine are married, have 2 children, two trusts, an LLC for their rental property and an LLC for their side business, and ten individuals on their 2022 Holiday Gift List.
With eight individual and entity tax IDs in the family, family trusts and businesses, they can purchase up to $80,000 in I Bonds the 2022 calendar year, and another $80,000 in January 2023 for the 2023 calendar year for their household (the rate - linked to the CPI-U is likely to still be high)
The couple can also open ten gift boxes on TreasuryDirect, a purchase $25 - $10,000 in I-Bonds. The gift boxes stays with them until they deliver the gift. The bonds earn interest in the gift box - even if the gift box with the bonds aren't delivered to the recipient for a few months or a year (next birthday?)
The recipient's holding period begins with the date purchased, and basis is the amount is the amount purchased. If not delivered for a year, principal and interest earned will be in the account for the recipient. If they cash out at the over a year mark, they will lose 3 months interest. This would not occur if they held for at least five years.
Historical rates for I Series Bonds:
May 1, 2022 | 9.62% |
Nov 1, 2021 | 7.12% |
May 1, 2021 | 3.54% |
Nov 1, 2020 | 1.68% |
Further information can be found at the Treasury Direct Series I webpage - link below.
Year-end 2022 and 2023 tax strategy & planning season is in full swing. Reach out to get our conversation started so we can answer your pressing tax questions, and discuss architecting current-state and future state tax projections, a road map to get you from "Point A" to your ideal "Point B", based on your intentions, and financial and tax structures.
Cobalt PacWest | CPAs & Tax Advisors
Palo Alto Square
3000 El Camino Real, Bldg 4
Palo Alto, CA 94306
650.930.9562 | 877.223.5678