Definitely a first world problem! Some thoughts...barrett wrote: ↑Wed Nov 07, 2018 10:38 amBecause of how many savings bonds I have (relative to other assets, that is) I have come to think of my EE and I-Bonds as sort of separate from my core PP-inspired holdings... almost a different asset class.
At age 60 and pretty much retired, I am planning to hold off until age 70 to take SS benefits and will of course have RMDs kicking in a few months after the SS spigot opens. I have a bunch of EE-Bonds that mature 2021-2023 (ages 63-65 roughly) and then a bunch of I-Bonds that mature 2029-2032. Despite their sassy fixed yields, I'll likely cash those in 2026-2028 just to avoid pushing me and my wife way up the tax ladder after I turn 70.
I guess I am just saying that there are cases where savings bonds are owned in such concentrations that they can't really be thought of as cash or even "deep cash". At a certain point the potential tax consequences just completely outweigh other factors (and this is without even considering the taxable interest impact on ACA subsidies).
Mine is a good problem to have but I've long been uncertain just how to fold these bonds into my overall AA.
I say focus on Roth converting to reduce those RMDs, and don't worry so much about the I bonds. 401K withdrawals are the real poison for you, since 100% of the withdrawal incurs ordinary income tax.
I kinda agree with Kbg and others who have said they expect both federal and state tax rates to go up in future - even beyond letting the current rate cuts expire. At the risk of getting a bit into a political topic - I see very little real chance of curbing low-skilled immigration (legal or otherwise), which means that the underclass will constitute an increasingly large share of the US population, and the taxpaying middle and upper classes will (relatively) shrink. This will provide great benefits when you want to hire a housecleaner or contractor, but their food stamps, medical care, education, subsidized housing, bilingual services, and other benefits will cause increasing pressure on local, state, and federal budgets.
Whatever you think of this situation, I think it means you want to pay taxes now in order to minimize taxable income later. In other words, consider Roth converting 401K money instead of selling I bonds early. Once you are out of the Obamacare woods, you might want to consider topping out the 22% bracket, especially if you think you'll be in that bracket after age 70 anyway. Then you can fit your I bond shedding plan into this framework.