IRA and Type I Bonds Because an IRA is not an individual and does not have a social security number, a Roth IRA, a SEP IRA, or a SIMPLE IRA cannot directly own a bond I. Unfortunately, the Treasury Direct application process requires the applicant to have a social security number. By the way, i-Bonds are an excellent fixed-income investment for most people. I like having i-Bonds, but not in an IRA.
Another value indexed to inflation are the treasury's inflation-protected securities, better known as TIPS. These default-free securities are also designed to protect the value of your money against the ravages of inflation. The big drawback of TIPS is that Uncle Sam requires that TIPS owners who are in a taxable account pay income taxes on inflation-adjusted earnings before receiving part of the inflation-adjusted money at maturity. That's why TIPS work best in a tax-protected account, such as an IRA or a Roth-IRA.
It would be better to use TIPS on your Roth. You have to use a broker if you want to be the direct owner of the TIPS. A number of branded mutual fund companies also sell funds comprised exclusively of TIPS. You can also purchase FDIC-insured short-term certificates of deposit at your bank for your Roth account.
You wouldn't have any credit risk with FDIC insurance. You would earn a decent interest rate. And if CD conditions are kept short, profits could always be made around the prevailing market interest rate. A lot is happening in the world.
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This protection against inflation for Type I bonds has caused a stir among savers over the past year, as they reached their highest level in about 40 years. If you want to use your federal tax refund to purchase paper I bonds, you must complete Form 8888 and submit it when you file your tax return. Once your order is completed, your TreasuryDirect account will store your bonuses and you can view them there at any time. Simply take your paper bonds to your bank, sign the back and the bank will credit your account as if you had deposited cash.
This publication explores three ideas for using I bonds during retirement to finance expenses for the coming years. Treasury regulations say that you cannot open an account to purchase savings bonds electronically through Treasury Direct in the name of an IRA. You can transfer securities purchased and held in a TreasuryDirect account to an IRA or other broker or bank account; check with your institution for more information, Benson says. However, with the commercial annotation system, banks and brokerage companies can offer customers tradable securities, such as bills, promissory notes, bonds, inflation-protected Treasury securities (TIPS) and variable-rate notes to invest in an IRA.
Instead of keeping your emergency fund in bank certificates or savings accounts in your savings book, you can let that money grow into bonds I until you need it for an emergency.
