By David Enna, Tipswatch.com
Want to find your happy place? Sometimes you have to go your own way.
The consensus advice is to buy individual Treasury Inflation-Protected Securities in a tax-deferred account, most likely a traditional IRA. These bonds pay taxable interest, after all, plus they dole out “phantom income” in the form of taxable inflation accruals.
Before I retired (laid off, technically) in 2016, I had limited investment space in traditional IRAs. But once I was freed from the corporate world, I moved my Vanguard 401k to a self-directed traditional IRA at Vanguard and began looking to restructure my inflation-protected investments. Since 2016, all my TIPS purchases and ladder-building have been in that IRA brokerage account.
But I still had an account at TreasuryDirect, a compilation of many purchases of I Bonds and TIPS for more than 20 years. I’ve been letting the TIPS mature, one by one, and just spending the proceeds. I have maturities still coming every year from 2025 through 2029, plus one in 2041.
Although I know I am not supposed to own TIPS in a taxable account, I view these TIPS holdings fondly. They bring me joy. So, why?
You can’t sell a TIPS at TreasuryDirect.
Actually, you can’t sell any traditional Treasury investment — bill, note, bond, TIPS, FRN — at TreasuryDirect. (Savings bonds are the one exception to this rule.) To sell a TIPS, you need to transfer the security to a bank or brokerage, where it can then be sold. This process, which can be exceedingly tedious and time consuming, is explained here.
However, as a committed buy-and-hold investor, I view this barrier as a plus. I have never sold a TIPS before maturity and plan to never let that happen.
Works for me. But if you are not 100% positive you can hold a Treasury security to maturity, DO NOT invest at TreasuryDirect. Use your brokerage instead, where any Treasury investment can easily be sold.
There is no such thing as ‘market value’ at TreasuryDirect.
Because there is no way to sell a TIPS inside TreasuryDirect — and the fact that TreasuryDirect does not allow tax-deferred accounts where RMDs could come into play — there is no need for the site to track the constantly changing market value of your investment.
Instead, for a TIPS, the only factor TreasuryDirect tracks is:
Par value x inflation index.
And the way TreasuryDirect tracks this amount (which will eventually determine the value at final maturity) is sort of amazing. Although TreasuryDirect publishes TIPS inflation indexes for every day of the year, the site ignores that information on your investment summary page.
Instead, it shows the par value x inflation index as of the date of the last coupon payment. Eventually, this information will be six months old and then finally update. Amazing, isn’t it? An example from last week:
When you buy a TIPS at a brokerage, within a day you will see its market value has changed — rising with falling market real yields and falling with rising real yields. You may see your investment slide “into the red.” But your underlying investment really hasn’t changed. You locked in your real yield to maturity when you made the purchase.
My alternative for tracking these TIPS at TreasuryDirect is to set up a simple Excel spreadsheet to calculate current accrued principal, the only factor that matters to me. I update the inflation index occasionally, with data from this site.
Is it realistic to ignore market value and focus on adjusted principal? In the serene world of TreasuryDirect it makes sense, and it works for me as a buy-and-hold investor. However, many people on Bogleheads would loudly disagree with me.
Obviously, in a tax-deferred account at a brokerage, market value comes into play because of potential required minimum distributions, which are based on market value, not adjusted principal. Plus, you need market information if you decide to sell. Brokerages have a duty to report market value. TreasuryDirect doesn’t.
A taxable brokerage account will also track market value, for the same reason. The TIPS can be sold there and you need that information.
TreasuryDirect is unique in ignoring market value. That being said, I know many investors shun TreasuryDirect (mostly because of account complications or estate considerations) and would never buy a TIPS there.
I Bonds versus TIPS.
For the I Bonds you hold at TreasuryDirect, the accrued principal updates monthly and the site always shows you the accurate current value (minus any potential 3-month interest penalty). Why the difference? Because you can redeem an I Bond on the TreasuryDirect site, and you need to know its current accrued value.
But remember: I Bonds have no secondary market and the accrued principal is the current value. There is no “market value.” And this is the same way TreasuryDirect treats the value of a TIPS — accrued principal as of the last coupon payment. This wipes out the concept of “market value,” which is something I appreciate.
Taxes? Not a problem. They are prepaid.
People don’t like holding TIPS in a taxable account because of the phantom income created by the inflation accruals, which create a tax liability even though they aren’t paid out until the TIPS is sold or matures. With a TIPS in a taxable account, you pay the phantom tax each year. At maturity you owe very little tax — just on a part-year inflation accrual and the final coupon payment.
This comes in handy in retirement. The TIPS matures and the investor gets cash to spend, owes little tax, and gets the benefit of the state income-tax exemption. With a TIPS in a traditional IRA, all taxes are shifted to the date of withdrawal. Once you make a withdrawal the entire amount is taxable at both federal and state levels, where applicable.
But, all things being equal …
If you want to be a serious investor in TIPS, creating a ladder of investments many years into the future, you will want to do this in a tax-deferred brokerage account, not TreasuryDirect. You will need the secondary market to fill the ladder and to take advantage of buying opportunities when you see them.
On TreasuryDirect, you can only buy TIPS at auction. That’s fine, but it will be difficult to build a comprehensive ladder that way. By using a tax-deferred account, you can shift money into TIPS from other investments without facing tax liability for the sales. You could build a multi-year ladder within days when real yields are highly attractive, as they are today.
So, take your choice: Serenity vs. efficiency.
• Now is an ideal time to build a TIPS ladder
• Confused by TIPS? Read my Q&A on TIPS
• TIPS in depth: Understand the language
• TIPS on the secondary market: Things to consider
• TIPS investor: Don’t over-think the threat of deflation
• Upcoming schedule of TIPS auctions
* * *
Follow Tipswatch on X (Twitter) for updates on daily Treasury auctions and real yield trends (when I am not traveling).
Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear. Please stay on topic and avoid political tirades. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.
David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
Treasury Inflation-Protected Securities 
Just saw this in an article be Jason Zweig of the Wall Street Journal and thought you may be interested:
“Treasury inflation-protected securities, or TIPS, are an ideal way to cushion your wealth against the risk of a stock-market decline and the corrosive effects of inflation. I’ve bought them, and I think you should, too—now more than ever.”
I worked with Jason in November on an article about TIPS. He is definitely a fan of investing in individual TIPS to hold to maturity: https://www.wsj.com/finance/investing/tips-inflation-protected-securities-4f7db9c5
Thanks for the link. I missed that article, although I read most of his and all of yours.
As always, David, thank you for an insightful article. My spouse and I started purchasing TIPS after reading several articles you have written! I do have a question: in reviewing the tentative auction schedule on Treasury.gov, I see there will be a re-opening of a 10 year TIPS in both March and May. Is there any way to identify now the CUSIPs associated with those re-openings in order to ascertain the term to maturity of those two TIPS? Or do you have to wait until the announcement dates in those respective months? Thanks!
The March and May reopenings will be CUSIP 91282CML2, the one originated in January and maturing Jan 15 2035. A new 10-year TIPS will be coming in July, but we won’t know the CUSIP until the Thursday before the auction.
We have all heard the advice to buy TIPS in retirement accounts since there taxable, but I ended up getting 6,000 par value of 5 Yr TIPS in Treasury Direct to replace some of those 0% I-Bonds that I redeemed. So I am good with paying the tax and not seeing the value change in TD. Got a lot more TIPS in retirement accounts though.
Also, maybe it’s obvious, but the fact taxable TIPs are free of state tax, is nothing to sneeze at. Even at my low Az tax rates, it often adds enough to the yield to overpower CDs and other bonds.
Thanks for pointing out the benefit of taxes on the “phantom income” each year– the small tax bill at redemption. That had not occurred to me.
I don’t mind TD. It’s not as user-friendly as Fidelity, but I’ve always been able to do what I needed. Back when T-Bills beat everything else, I thought it was pretty fantastic. I ran a T-Bill ladder with money coming in and going out every week. Once I got used to it, I converted all my paper I Bonds to electronic, and now that I hear banks don’t want to cash them, I’m glad I went to the trouble.
I never ventured into TIPS until reading your blog, and all mine are in a Rollover IRA. In my obsessive bookkeeping, I always post the “real” value every month, and it bugs me a little that my books don’t match my statement, since it shows market value.
I own TIPS in both after tax and deferred tax accounts. Even in my brokerage accounts, like you, I only update Quicken “prices” for my TIPS security to be the inflation index.
I agree, it is the serene way to do this. I don’t worry about the volatility of secondary market pricing, even though I bought it on the secondary market.
I hold TIPS at TD and in a taxable brokerage account and in a Roth IRA. I agree TD is serene because you don’t have to view the ups and downs in value. I also plan to hold until maturity, so I ignore the value in the brokerage account. I have stopped buying new TIPS from TD so I have the option to sell early (can’t imagine needing to do that, but the option is nice) and ability to buy on the secondary market. Once my TIPS mature at TD, I will only have I Bonds there. I have found TD to be a great website for what it does, and also use other investing locations for other purposes.
I have just turned 73. My wife (age 69) has lost much of hers. I’d like to think that my faculties and financial abilities are still pretty decent – but, if/when they diminish (or even completely depart) Neither of us may notice.
Annutities, Social Security, and treasury direct all help to ensure that I am never too big a target. The ease of TD investing ensures that I will get real return without the risk. And, yes at 73 I am still saving.
I use the TD website:
https://www.treasurydirect.gov/auctions/announcements-data-results/tips-cpi-data/tips-cpi-detail/?cusip=912810fh6
2/28/25 index ratio: 1.91979
$5,000 * 1.91979 = $9,598.95
There’s a humorous saying: “If you want to reduce the volatility of your portfolio, just stop looking at it so often.”
The absence of minute-by-minute updated TIPS market pricing at TreasuryDirect seems like a way of doing that on behalf of the customer. I’m thinking of friendly street cop scenes in various movies: “Let’s move along folks, nothing to see here.” 🙂
David,
Maybe this question has been asked before, but if so I didn’t see it.
With I Bonds, when you are ready to redeem, must you redeem the entire $10K if this is was the purchased amount? In other words, if I have a $10K purchase from eight years ago and I need some money, can I redeem only $5k or do I have to redeem the entire $10k or nothing? Thanks in advance.
You do not need to redeem the entire amount. The amount of interest will be pro-rated for tax purposes. (Paper I Bonds, however, must be redeemed in full.)
What if you transfer the paper iBond to treasury direct first? Then can you redeem only a portion of it?
CourtneyJ, after you covert, you can redeem any amount you like. TreasuryDirect requires that if you do a partial redemption you need to leave at least $25 in your account.
https://savingsbonds.gov/GA-FI/FedInvest/securityPriceDetail
You can also see daily and historical TIPs market prices at the above link.
Under Federal Investments Program Rates and Prices click on Today’s Prices
or Historical Prices. Scroll down quite a ways until TIPs info starts to show up.
Looking at the procedure for transferring a treasury direct security to a brokerage account, one of the requirements is to provide “the agent or broker’s name and phone number”. Is there an agent or broker associated with a self-directed brokerage account?
You better be happy holding your Ibonds at Treasury Direct because that is the only place you can sell (redeem) them, or buy them.
While I am never serene about financial stuff, I am pretty happy with 3 month Tbills at 4.3%, buy at auction and hold to maturity. As I live in a high state income tax state, I appreciate not paying state income tax on the interest. If the Fed drops the federal funds rate, long term rates will increase, as we have seen. I would happily move my money to twenty year treasuries, realizing I might lose when I sell. But I would have no desire to sell as I live quite well off the interest, especially at the current level of near 5%. The heirs to my estate might have a different story, but, well, I would be dead and wouldn’t be caring too much about anything,
I have been redeeming I bonds at my local bank.
They must be paper ibonds and your bank must be one of the last to deal with redeeming ibonds. I have not heard of another, but I don’t follow all banks, of course. In the old days you could buy and sell ibonds at any bank, they were all paper, the limit was $30000 a year, and you could buy them using a credit card.
Hi David,
Thanks for all the information and insights you provide! It is greatly appreciated.
Just a clarification to the last part of the section on taxes (“With a TIPS in a traditional IRA, all taxes are shifted to the date of withdrawal. Once you make a withdrawal the entire amount is taxable at both federal and state levels.”). Not all states tax traditional IRA withdrawals. According to a 2024 posting by AARP https://www.aarp.org/money/taxes/info-2023/states-that-do-not-tax-your-retirement-distributions.html, 13 states do not, including Pennsylvania (where I live).
Thanks again,
Rick
David, can you expound on “..many investors shun TreasuryDirect (mostly because of…estate considerations)?
Thank you for your ongoing educational posts!
Dealing with TreasuryDirect can be time-consuming after the account owner dies. I have never experienced this but have heard from many readers where this was an issue. Here are details: https://www.treasurydirect.gov/savings-bonds/manage-bonds/death-of-owner/ For spouses who are co-owners of the account, this may not be a huge issue. Possibly some readers can give feedback on this.
I would be grateful if someone can share their experience or expertise with TreasuryDirect accounts owned by Trusts, revocable or irrevocable Trust, when a Grantor or beneficiary dies.
It was my expectation the Trust document controls what happens next, via the current Trustee’s direction.
JLS, I have all my Ibonds in my name with my living trust as beneficiary. When I pass, I am pretty sure the ibonds will pass to my trust. The fiduciary, or trustee, will carry out my wishes according to the terms of the living trust. This includes what happens to the ibonds.
JLS, when your trust changes the trustee managing the trust i.e. death of the current trustee(s). The named trustee to take over the trust would send a copy of the trust, death certificate(s) and fill out FS Form 5446 and send to Treasury Direct.
Click to access sav5446.pdf
Thank you Doug for the detailed information, including the link to Form 5446. Makes sense for a Treasury Direct Account titled in the Trust’s name.
Patrick, thank you for your reply too.
If I want to build a short ladder – about four years of $150,000 per year – to address my 88-year-old Mom’s potential long-term care needs, I have no individual TIPS options in my tax-deferred account, and I live in a high-tax state (California, 9.3%), should I build a nominal ladder or a TIPS ladder? All things equal, I’d prefer to peace of mind of TIPS, but I am concerned about holding TIPS in a taxable account.
I am not a financial adviser, and this is your personal decision. Do you think you would be spending $150,000 a year out of that account each year? I’d probably prefer going with a nominal ladder to fill each year, since the timeframe is just four years. Or, maybe nominal for years 1 to 3 and a TIPS for year 4?
David: I hold what appears to be a minority view. As long as you have liquidity to fund the federal income tax on the phantom income, I think it can be perfectly sensible to hold TIPS in a taxable account.
One reason is that direct ownership preserves the state income tax exemption on Treasury interest (including the CPI adjustments to principal) which is not allowed on TIPS interest that passes through a tax deferred account.
A second reason is the possibility that you can take a “windfall” profit (that will be taxed at capital gains rates) if there is a significant drop in interest rates after the date of your purchase of the TIPS. I was able that in December 2012 and I think there is a reasonable chance of doing so again in the next 3 to 5 years.
Logical thinking, especially if you live in a high-tax state. I have never minded the phantom tax, but it isn’t a huge issue for me since most of my holdings are now tax-deferred.
I sometimes wonder if the decision to hold TIPS in a taxable situation relies on the assumption that future inflation will be mostly “garden variety” or a bit more, so that the pay-as-you-go “phantom income” tax will also remain quite tolerable.
What happens in a situation where we have really serious inflation, e.g., late 1970s/early 1980s–or worse? Is it possible that people who (1) hold TIPS in a taxable situation, but (2) don’t keep lots of cash lying around, could get really whipsawed trying to come up with the money to pay the income tax on their “phantom” TIPS gains?
Not predicting this, hoping it never comes to pass. But the chance is substantially greater than zero. I used to work around lawyers, and my mind still has a tendency to ask: “What could go wrong with my assumptions, i.e., how might they backfire, and what would I do then?”
Hyper-inflation is certainly possible, but I’d say still not likely. Over past years, I always warned about buying a 30-year TIPS with a near-zero coupon rate in a taxable account. There was no way the coupon payments would cover the taxes due, and you wouldn’t get the proceeds for 30 years. That didn’t make sense as an investment. A 30-year with a 2.125% coupon (the most recent coupon) has good shot of covering taxes, if inflation remains reasonable.
Same here happily using a taxable Treasury Direct or its predecessor for nearly 25 years. My Piper Jaffray broker didn’t offer TIPs.
I too appreciate the MN tax free income, no brokerage fees & no HUGE tax bite at maturity-distribution.
My taxable bond ladder also includes municipal bonds, which help fill up certain years – but no inflation protection on those 😦