I-Bonds Update

BUSINESS
It turns out I-Bonds are not the educational funding panacea I had originally thought they were. What attracted me to them was my understanding the interest would accrue federal tax free if used for secondary education. While that is true, phase out rules apply. If a married couple filing jointly has a modified adjusted gross income of $94,700, the federal interest free portion starts to phase out and is completely eliminated when the modified AGI is $124,700. I-Bonds still have the advantage of being state and local tax free and the federal tax is deferred until used. As an addition to a portfolio that is trying to lower its volatility on a tax deferred basis, I-Bonds still make sense. However for funding educational needs, 529 plans work better because of their tax advantages and because of broader investment choices.