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I Bond Update

October 21st, 2023 at 11:10 pm

It looks like most of our mega interest will expire the end of November.

We've accumulated $4,000 I Bond interest that will have to pay taxes on when we cash out.  I was thinking that maybe I'd cash out half this year (December) and half next year (January).  But that if taxes were already covered and no crazy tax cliffs, might be easier to just sell this year.  But then I realized it's moot because I forgot about 1 year holding period for latest bond purchase.  & the other one (mega interest) expires in January.  So max I'd only want to cash out half in 2023 anyway.

I presumed the "tax free if used for college" part was useless (for our personal situation) and never dove much deeper than that.  But I looked at the calculations today and yeah, that is not going to help us.  All I could come up was ~$350 college expenses this year (for tuition; not covered by grants or applied to federal tax credits).   Which would be the interest on my newest bond.  That apparently I can't cash out until 1/1/24.  But anyway, as I thought it might be, both the pricipal and the interest needs to be applied for college expenses.  It's too high of a bar to make this tax-free on any meaningful level.  If I sell half the bonds, then about 1.6% of the interest will be tax-free.  (Because 1.6% of the proceeds will go to college expenses).

The only reason I have even that much in college expenses is because MM(20) took a $1,000 summer course.

I presumed we'd get these state grant refunds (for MM's first 2 junior quarters) when coming up with these numbers.  Last I heard, we should get funds (for fall quarter) the end of next week?  Not holding my breath.  Still in "will believe it when I see it" mode and am in disbelief about the dollar amount.   Until then, for all I know it was just a typo.

I was bummed that I Bond rates dropped so low because it was nice when it was just a separate bucket I didn't have to keep track of.  But duh, I remembered I used to have all this money in cash at our brokerage.  The brokerage is paying 5%+ on cash right now.  Will just move the money back there.  I just forgot that is where I had it before.  No separate tracking to worry about, it will be in its own bucket.  

While all this money has been tied up in I Bonds, I've just been tapping our cash reserves for MM(20)'s rent.  Our cash reserves don't amount to much at this point.  I will be reimbursing myself $6,000 (from I Bonds) to cover 2023 rent (July through January) and a $500 mattress purchase.  It will be nice to use 'money saved a long time ago' to start paying for some of these expenses.  The balance of this one bond (principal + mega interest) will cover MM's rent the rest of this school year.  There will be some money left over.  Especially if that money continues to earn 5%+ interest.  I suppose the interest on this money (while it's 5%+) may cover utilities.  I may be able to squeak by and have all his 2023-2024 housing covered under this one bond.  This sounds like a miracle at this point, his housing was so up in the air just 6 months ago.  But the interest was piling up so fast, I did decide to use some of this money for the mattress. 

Edited to add:  I suppose there is the benefit of state tax-free income re: I Bonds.  Is not on my radar re: very low (progressive) tax rate.

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