Experts answer three tricky questions about Series I bonds

As investors sought to evade rising prices and stock market volatility, demand for Series I bonds, an inflation-protected, almost risk-free asset, surged.

in the meantime May’s annual inflation rate rose 8.6% — Highest interest rate in over 40 years, according to the U.S. Department of Labor — I’m currently paying bonds Annual rate up to October 9.62%..

This is especially attractive after about 6 months. S & P 500Dropped more than 20% from January, One year from the start of the worst six months since 1970..

In fact, by June 24, 1.85 million new savings bond accounts had been opened since the annual I bond rate jumped to 7.12% in November, according to Treasury officials.

Byrke Sestok, a certified financial planner and co-owner of Rightirement Wealth Partners in Harrison, NY, said:

With the support of the US Government, I will not lose the value of the bond. And if you’re comfortable not touching money for 12 months, he said, the current rates “dwarf” other options for cash reserves.

Still, there are nuances to consider before loading money into these assets. Here are the answers to some of the tricky questions I combine.

1. How do I bond interest rates work?

Bond returns have two parts: fixed rates and floating rates, which fluctuate every six months based on the consumer price index. The US Treasury announces new rates on the first business day of May and November each year.

Floating rates have skyrocketed as inflation has risen over the past year November annual rate 7.12% When May 9.62%.. However, the price period for the first 6 months depends on the date of purchase.

For example, if you purchase an I bond on July 1st, you will receive an annual rate of 9.62% until December 31, 2022. After that, it will start to earn the annual rate announced in November.

2. How do I pay taxes on bond interest?

I guarantee interest, but avoid state and local taxes, but you’re still on the federal tax hook.

There are two options to cover the bill: report interest on your tax return each year or postpone it until you redeem the I bond.

Most people postpone, but the choice depends on several factors, explained Tommy Lucas, CFP and registration agent at Mois and Fitzgerald Tamayo in Orlando, Florida.

All of these decisions return to the ultimate goal of this investment.

Tommy Lucas

Financial Advisor to Moisand Fitzgerald Tamayo

For example, if you choose to pay interest on I bonds each year before you receive income, you will need another source of income to cover those levies.

However, with these funds Payment of educational expensesHe said, because interest is tax-free, it doesn’t make sense to pay a levy every year.

“All of these decisions return to the ultimate goal of this investment,” Lucas added.

3. What happens to my bond if I die?

When creating Treasury Direct Account for Purchasing I BondsIt is important to add what is called a beneficiary designation. Specifies who will inherit the asset in the event of death.

Without this designation, Sestok explained that it would be difficult for a loved one to collect I-bonds, and depending on the amount of I-bonds, it could take time and money to pass the Probate Court.

“Personally, I try to get my clients to do it right from the start,” he said, explaining how to add beneficiaries in advance to avoid headaches later.

However, if you set up an account without a payee, you can add an account online by following these steps: Overview here With Treasury Direct. You can ask questions and call support, but now he says, “I’m getting more calls than usual.” According to the website..

Together with the nominated beneficiaries, I guarantee that the heirs can continue to hold the asset, monetize it, or reissue it in their name, According to Treasury Direct..

Interest accrued up to the date of death can be added to the original owner’s final tax return or heir’s tax return. In any case, beneficiaries can decide whether to continue to postpone interest, Lucas said.