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Author: heckle100 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35357  
Subject: I-bonds in an IRA Date: 8/29/2003 7:57 PM
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I would like to purchase government I-bonds to sit in a regular IRA account, but I don't know how to bring this about. I inquired of two banks where I have accounts, and they couldn't pull this off. Neither could Fidelity or Schwab (although they both could handle TIPS). Does anyone know of a way to do this?
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8328 of 35357
Subject: Re: I-bonds in an IRA Date: 8/29/2003 8:41 PM
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Nice name, you got there heckle. Are you one of my cousins?

Welcome to the Fool.

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8329 of 35357
Subject: Re: I-bonds in an IRA Date: 8/29/2003 8:49 PM
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"I would like to purchase government I-bonds to sit in a regular IRA account, but I don't know how to bring this about. I inquired of two banks where I have accounts, and they couldn't pull this off. Neither could Fidelity or Schwab (although they both could handle TIPS). Does anyone know of a way to do this?"

I don't know how to do this, or if you can (I don't think there's such an IRA option mentioned on the Treasury site). But a more basic question is why you would want to. The advantage of US Savings Bonds over TIPS or Treasuries or CDs comes from delay in paying federal taxes and exemption from state taxes. The delay is useless in a retirement account, and you would end up having to pay state taxes on the earnings when you cash in (assuming a regular IRA, not a Roth).

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Author: foobar73 Big red star, 1000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8330 of 35357
Subject: Re: I-bonds in an IRA Date: 8/29/2003 10:02 PM
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I would like to purchase government I-bonds to sit in a regular IRA account, but I don't know how to bring this about. I inquired of two banks where I have accounts, and they couldn't pull this off. Neither could Fidelity or Schwab (although they both could handle TIPS). Does anyone know of a way to do this?

There's a link on the Savings Bonds page here which gives the regulations on I-bonds in IRAs:

http://www.publicdebt.treas.gov/sav/sbregistr3.htm#trusts

As a summary: you need to have your IRA trustee buy the bond, and register ownership with you as the beneficiary. No IRA trustee I know of is willing to do this for you, however, since this only means more work for them, and they don't get commissions or fees on Savings bonds, either.

As Loki suggested, there is a waste of the tax deferral benefit of I-bonds when held inside an IRA, anyways, so settling for TIPS instead might not be an entirely bad thing to do.

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Author: heckle100 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8333 of 35357
Subject: Re: I-bonds in an IRA Date: 8/30/2003 10:06 AM
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"I would like to purchase government I-bonds to sit in a regular IRA account, but I don't know how to bring this about..."

The replies to my question are appreciated. My reasons for wishing to do this "foolish" thing are that I am semi-retired and drawing on my savings, have much more tax-deferred than non-tax-deferred money, and have other uses for the latter (including municipal bonds). Maximizing tax-deferred money is not in itself an objective for me any more. Anyway, if I could buy I-bonds in an IRA, I might at some time want to cash them in and buy something else in the IRA, (like new I-bonds with a higher fixed rate), and I wouldn't have to pay taxes at the time. The down-side, of course, is missing the state tax benefit plus having to pay any fees the trustee charged. I wanted to include inflation-protected bonds as part of the bond component of a diversified portfolio (by transferring from another IRA investment).

Anyway, noone seems knows of a bank, etc., that would do this. So, I'm thinking about Vanguard Inflation-Protected Securities Fund (in my IRA). Any opinions on that?


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Author: KenAtPcs Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8334 of 35357
Subject: Re: I-bonds in an IRA Date: 8/30/2003 11:45 AM
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Anyway, noone seems knows of a bank, etc., that would do this. So, I'm thinking about Vanguard Inflation-Protected Securities Fund (in my IRA). Any opinions on that?

Yes. If you're willing to go with a fund that owns TIPS, then why not simply purchase the TIPS yourself? The current (market yield) fixed rate on 30-year TIPS (well, 28+ years, actually) is just under 2.7%. Far better than the current 1.1% I Bond rate. It's true that TIPS are subject to market risk that I Bonds aren't, and that's probably why you preferred I Bonds. But if you're thinking of a fund of TIPS, you might as well consider the individual securities instead.

Ken

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Author: heckle100 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8339 of 35357
Subject: Re: I-bonds in an IRA Date: 8/30/2003 6:12 PM
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"If you're willing to go with a fund that owns TIPS, then why not simply purchase the TIPS yourself?"

Thank you. I thought a fund would be less fuss and bother, and Vanguard's expenses are only 0.22%. What are the pros and cons? (Again, this would be in an IRA.)

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Author: foobar73 Big red star, 1000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8342 of 35357
Subject: Re: I-bonds in an IRA Date: 8/30/2003 10:29 PM
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I thought a fund would be less fuss and bother, and Vanguard's expenses are only 0.22%. What are the pros and cons? (Again, this would be in an IRA.)

The fund will likely be cheaper for small investments (under, say, $5,000 or $10,000 or so). This depends a lot on what your broker will charge you to buy actual TIPS. Keep in mind brokerage costs are often "hidden" in the price: you might not pay an actual commission, but the brokerage will raise the price so that they make a profit on the transaction. But also keep in mind that if you'll be holding for a long time, you would pay a fund year after year, whereas any brokerage charges for buying actual TIPS will be done only once.

TIPS only trade in increments of $1000, but funds can be bought in any amount (subject to the fund company's rules, of course), making funds even more attractive for small investors, especially those still saving and investing new money on a regular basis.

Unless you can somehow find stripped TIPS, you will receive your interest payments as cash, should you choose the actual bonds. It will then be up to you to figure out how to reinvest those interest payments. Normally you will not be able to reinvest them in TIPS, since you'll need at least $1000 just to buy one TIPS. On the other hand, the fund will allow you to reinvest interest automatically.

Holding actual TIPS will ensure you do not take a loss, if you can hold on to them to maturity. This means that you know with certainty what you will get at a particular point in the future. With a fund, you will have no idea what you will get for your shares at any point in the future.

In a nutshell, the fund primarily offers convenience, and whether the convenience is worth the price of the annual expenses is somewhat dependent on your personal financial situation.

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Author: heckle100 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8347 of 35357
Subject: Re: I-bonds in an IRA Date: 8/31/2003 9:02 AM
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"In a nutshell, the fund primarily offers convenience, and whether the convenience is worth the price of the annual expenses is somewhat dependent on your personal financial situation."
Great summary! Thanks to all for the advice.



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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8348 of 35357
Subject: Re: I-bonds in an IRA Date: 8/31/2003 11:12 AM
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"In a nutshell, the fund primarily offers convenience, and whether the convenience is worth the price of the annual expenses is somewhat dependent on your personal financial situation."
Great summary! Thanks to all for the advice.

Don't forget about interest rate risk on a TIPS fund. For example, in 2002 Vanguard's fund had over a 12% capital return. Over the last 10 weeks, however, there has been a 7% capital loss.

How interest rate risk works with a TIPS fund is harder to figure out than for other bond funds, but the risk still exists. You don't have that kind of risk if you buy TIPS yourself, say a ladder of them, and hold each to maturity. The problem is doing this with limited money.

http://flagship2.vanguard.com/VGApp/hnw/FundsPerformance?FundId=0119&FundIntExt=INT&

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