I Bonds held at Treasury Direct. Taxes on gains are deferred until they are cashed, but they were purchased with income that was already taxed...do they belong in "Retirement Accounts" or "Taxable Accounts"?
At the moment, I have them in Retirement, with the purchase price specified as after-tax contribution.
A tax-deferred account with a basis sounds good, but could cause problems. You would have to get them withdrawn before RMD age or the program will force RMDs and the program only allows one tax deferred account, so if you have a traditional IRA or 401k, the after-tax calculation will get all messed up as it will get diluted by those other accounts.
I saw in another thread an approach that might work better, which is to not put it in the portfolio, but represent it in as two income streams. One stream would be nontaxable to represent the basis and one would be taxable to represent the interest.
A tax-deferred account with a basis sounds good, but could cause problems. You would have to get them withdrawn before RMD age or the program will force RMDs and the program only allows one tax deferred account, so if you have a traditional IRA or 401k, the after-tax calculation will get all messed up as it will get diluted by those other accounts.
I saw in another thread an approach that might work better, which is to not put it in the portfolio, but represent it in as two income streams. One stream would be nontaxable to represent the basis and one would be taxable to represent the interest.
I don't see how representing them as income streams would work. I don't know when they will be cashed, if ever.
If they must be either Retirement or Taxable, does Taxable make more sense?
The program isn't designed to handle I-bonds, so nothing in the program comes to mind that handles all their properties correctly. If you are not going to sell and since they defer interest, then maybe just call it property (that would be taxed wrong if sold, but you're not selling) and adjust the asset allocation of your remaining financial assets? That way they grow and show up in your net worth, but don't otherwise interact.
The program isn't designed to handle I-bonds, so nothing in the program comes to mind that handles all their properties correctly. If you are not going to sell and since they defer interest, then maybe just call it property (that would be taxed wrong if sold, but you're not selling) and adjust the asset allocation of your remaining financial assets? That way they grow and show up in your net worth, but don't otherwise interact.
Thanks Rick.
If you had to put them in either retirement or taxable, which would you choose?
In real life - in a retirement account.
In Pralana - in taxable and accept that the program overestimates taxes.
@feh Ibonds have 30 year maturities though. I enter mine as "windfall income" on the year I know I'll cash them (e.g. to pay my son's college) or at their 30 year mark, with two entries each: the basis as "not taxed" and the gain taxed as interest. The problem with this method is the sum needs to be excluded from your other assets for monte carlo simulations, which may or may not be a problem for you. I also think it might invalidate roth conversion routine, don't think the "windfall" and "other income" gets considered there. (In my case, I just contextualize the monte carlo results with this in mind, e.g. "I can be a little more risky with monte carlo failure, given I have x amount of ibonds and TIPs in addition". So whereas I might normally try for 90% success, I might be okay with 75% success knowing the ibonds are there independent of the simulation.)
@feh Ibonds have 30 year maturities though. I enter mine as "windfall income" on the year I know I'll cash them (e.g. to pay my son's college) or at their 30 year mark, with two entries each: the basis as "not taxed" and the gain taxed as interest. The problem with this method is the sum needs to be excluded from your other assets for monte carlo simulations, which may or may not be a problem for you. I also think it might invalidate roth conversion routine, don't think the "windfall" and "other income" gets considered there. (In my case, I just contextualize the monte carlo results with this in mind, e.g. "I can be a little more risky with monte carlo failure, given I have x amount of ibonds and TIPs in addition". So whereas I might normally try for 90% success, I might be okay with 75% success knowing the ibonds are there independent of the simulation.)
The alternative of using advanced modeling of creating a custom historical asset of Ibond with your real return and zero standard deviation, and you'd need to figure out what percentage of your taxable account will be ibonds through time. And it might also invalidate roth conversion and withdrawal stuff, since it would assume liquidity.
In my case, I really don't know when/if I will cash them. Maybe next year for a home purchase...maybe not until they mature.
Which is why I'd prefer to just consider them part of my portfolio, like other assets. I've moved them from retirement to taxable, per Rick. We should have more than enough saved for our lives, so even if they aren't treated properly by various algorithms, it's not the end of the world. Would be nice not to have to put a square peg in a round hole, though.
I hope I'm not revealing anything top-secret, but I understand that they're actively working on an upgrade to more accurately handle this.
I'm glad to hear there may be a new feature coming! I'm Day One with Pralana. I have a significant amount in IBonds basis, plus the interest to be taxable only by the feds. I already separated it into two asset classes in Taxable, but I don't think I have it dialed-in to even approximate reality yet. Or if that's even possible before an enhancement is made.
Newbie here. I guessed creating a cash Account for now and I can alter the inflation/compounding interest later
@avnorm I was able to create an "IBonds pension" that's accurate in terms of amount taxed vs. my basis being returned to me-- all except state tax. My state taxes all sorts of pensions, so I'm not able to indicate that it shouldn't tax this one. I use the FV function in Google Sheets to predict each IBond's value at maturity based on the same inflation number in Pralana. For the Pralana pension, I used an average payout value over the years I have IBonds maturing. Then I set the growth to nominal zero. It works well enough until a better solution is provided.
